Contractor Rate to Salary Calculator

What this calculator does

This tool converts a contractor's hourly rate into the salary it's actually equivalent to once you account for the costs a contractor covers themselves — taxes, benefits, and unpaid time. Enter the hourly rate, billable hours per year, and an overhead percentage. It's useful whether you're a contractor pricing your rate or a business comparing a contractor to a W-2 hire.

How it works

First it computes gross annual billings: hourly rate × billable hours per year.

Then it discounts that by an overhead percentage representing what a contractor pays out of pocket that an employer would otherwise cover — self-employment taxes, health insurance, retirement, paid time off, and administrative/unpaid time. The result is a W-2-equivalent salary.

A worked example

For a $150/hour contractor working 1,800 billable hours a year, with 30% self-paid overhead:

A $150/hour rate sounds far higher than a $189,000 salary, but after the costs a contractor self-funds, that's the comparable figure.

How to read your result

The overhead percentage is the lever that matters, and it varies by situation — contractors covering full health insurance, retirement, and lots of unbilled admin time may need 30–40%+; those with minimal overhead, less. For a contractor, this shows the salary you'd need to match your rate (or the rate you need to match a salary). For an employer, compare the contractor's gross billings against the fully loaded cost of an employee (see the True Cost of an Employee calculator) — the cheaper-looking option isn't always cheaper.

Common mistakes

• ·Comparing hourly rate directly to salary. They're not comparable until you account for the employer-side costs a contractor self-funds.
• ·Assuming full-time billable hours. Few contractors bill 2,080 hours; vacation, admin, and gaps between clients reduce billable time — use a realistic number.
• ·Picking an overhead rate at random. Base it on actual self-employment tax, benefits, and unpaid time rather than a round guess.

Frequently asked questions