Contractor vs Employee Cost
See the fully-loaded annual cost of an employee — salary plus taxes, benefits, paid leave, and overhead — next to what you'd pay a contractor. Enter amounts in any single currency.
What goes into the true cost of an employee
The salary an employee sees is only the start. Employers also pay payroll taxes / social contributions, benefits such as health insurance and retirement, the cost of paid time off and public holidays, and overhead like equipment, software, and workspace. Together these push the fully-loaded cost to roughly 1.25–1.4× the base salary.
A contractor invoice has none of those add-ons, which is why contractors look cheaper line-for-line — but they typically charge a higher rate to cover their own taxes and lack of benefits, and the legal risk of misclassification sits with you.
Payroll & contractor tools
Partner · we may earn a commissionFrequently asked questions
On top of gross salary, an employer pays payroll taxes/social contributions, benefits (health, retirement), the cost of paid time off and holidays, and overhead like equipment and software. Fully loaded, an employee typically costs about 1.25–1.4× their base salary.
On paper a contractor often looks cheaper because you pay only their invoice — no employer taxes, benefits, or paid leave. But contractors usually charge a higher rate, you have less control, and misclassifying an employee as a contractor carries serious back-pay, tax, and penalty risk.
It is the ratio of an employee’s total cost to their base salary. If someone on a $80,000 salary costs $104,000 fully loaded, the multiplier is 1.3×. It is the honest number to compare against a contractor rate.
Cost should never decide classification. Use the IRS/DOL test or, in California, Massachusetts and New Jersey, the stricter ABC test to determine whether a worker is legally an employee or a contractor.
This is a cost model using the percentages you enter; see our methodology.