Contractor vs employee cost calculator
See the true all-in cost of an employee, employer Social Security, Medicare, FUTA, benefits, and state unemployment, then compare it against what you would pay a contractor. Built for US founders and finance teams.
Compare the all-in cost
Enter the salary and the contractor rate to see the difference.
What you would pay the contractor for the year. They cover their own self-employment tax, so it is not an employer cost.
Employee all-in annual cost
Social Security applies only to salary up to the 2026 wage base, which is adjusted annually. Estimate only. The contractor route is only cheaper when the worker is correctly classified.
This calculator is a general guide for US companies and does not replace professional advice. Employer tax rules change and the Social Security wage base is adjusted every year. Benefits, workers compensation, and state unemployment costs vary by company and state. Confirm the specifics with a qualified tax professional before you make a hiring decision.
A contractor saves you employer payroll taxes and benefits, but only if the worker genuinely meets the test for an independent contractor. Treating someone who should be an employee as a contractor is worker misclassification, which can mean back taxes and penalties that wipe out the saving. For the full breakdown of how the two stack up, read contractor vs employee cost for US companies.
What goes into an employee's true cost
Base salary
The starting point. This is the gross annual pay you offer the employee, and every employer tax line below is calculated from it.
Employer Social Security, 6.2%
The employer share of Social Security is 6.2% per IRS Topic 751. It applies only to wages up to the Social Security wage base, which is $184,500 for 2026 per IRS Topic 751 and the SSA 2026 fact sheet. That wage base is adjusted annually, so it changes each year. Salary above the base is not subject to this 6.2%.
Employer Medicare, 1.45%
The employer share of Medicare is 1.45% per IRS Topic 751, and it applies to all wages with no wage base. The 0.9% Additional Medicare Tax on wages over $200,000 is withheld from the employee with no employer match per IRS Topic 751, so it is not part of the employer cost in this tool.
FUTA, about 0.6%
Federal unemployment tax is 6.0% on the first $7,000 of each employee's wages, with a state credit of up to 5.4%, which gives a typical net rate of 0.6%, per IRS Topic 759. This tool uses the 0.6% net figure on the first $7,000. If you are in a credit-reduction state, your effective FUTA rate is higher.
Benefits and workers compensation
Health coverage, retirement contributions, paid leave, and workers compensation are real employer costs but they vary by company and state, so you set them as a percent of salary. They are not a fixed federal rate.
State unemployment, SUTA
State unemployment tax is set by each state and depends on your experience rating, so you enter your own rate as a percent of salary. It is separate from federal FUTA above.
What the contractor pays instead
You do not pay employer payroll taxes on a properly classified contractor. The contractor pays self-employment tax of 15.3%, which is 12.4% for Social Security and 2.9% for Medicare, on their own net earnings per the IRS self-employment tax page. That is their liability, not yours, which is why many contractors charge a higher rate than an equivalent salary.
Common questions
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