Tool
Contractor Rate to Salary Calculator
Compare a contractor’s hourly rate to an equivalent salary after self-paid taxes, benefits, and unpaid time.
Results
- Gross annual billings
- $270,000
- W-2-equivalent salary
- $189,000
Contractors cover their own employer payroll taxes, benefits, and unpaid/admin time. The overhead % discounts gross billings to a comparable W-2 salary.
A worked example — your numbers
At $150/hour for 1800.0 billable hours a year, gross billings = $150 × 1800.0 = $270,000.
Stripping out 30.0% of self-paid overhead: $270,000 × (1 − 30.0%) = $189,000 W-2-equivalent salary.
How to read your result
That $150/hour rate is really comparable to a $189,000 salary once you account for the taxes, benefits, and unpaid time a contractor funds themselves. A salaried offer below $189,000 would be a pay cut; above it, a raise.
The overhead percentage is the whole game — 30.0% reflects full self-funded health, retirement, and meaningful unbilled time. If you're an employer, compare $270,000 in gross billings against the fully loaded cost of a W-2 hire, not against the salary alone.
This calculator provides directional estimates for informational purposes only and is not tax, legal, or financial advice. Results depend on the inputs you provide. For advice specific to your situation, book a Discovery Meet.
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.
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
Why isn't an hourly rate the same as a salary?+
A contractor pays their own self-employment taxes, health insurance, retirement, and time off, and absorbs unbilled hours — costs an employer normally covers for an employee. The overhead percentage strips those out so the two are comparable.
What overhead percentage should I use?+
It depends on what the contractor self-funds. Covering full health insurance, retirement, and significant admin/unbilled time can push it to 30–40% or more; lighter overhead means less. Base it on real numbers for an accurate comparison.
How many billable hours should I assume?+
Rarely the full 2,080 of a work year. After vacation, holidays, admin, and gaps between engagements, many full-time contractors bill closer to 1,600–1,900 hours. Use a figure that reflects reality.
I'm an employer — how do I compare a contractor to a hire?+
Compare the contractor's gross annual billings to the fully loaded cost of the employee (salary plus payroll taxes, benefits, and overhead — see our True Cost of an Employee calculator). Also weigh control, continuity, and worker-classification rules, which a CPA can advise on.
Want a real answer, not just a calculator?
A calculator gives you a directional number. A free Discovery Meet gives you a CPA who reviews your actual books, structure, and goals.
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