Employee vs Independent Contractor Cost Calculator
Calculate and compare the true total cost of hiring an employee versus an independent contractor — including all employer taxes, benefits, and overhead.
Employee
Contractor
True Cost of an Employee
A $80,000 salary costs an employer far more than $80,000. Add employer FICA ($6,120), health insurance ($12,000–$15,000/year), PTO (2 weeks = $3,077), FUTA/SUTA ($500), workers comp ($800), and overhead ($15,000), and the total employer cost approaches $115,000–$120,000 annually for an $80k employee.
When Contractors Make More Sense
Contractors are ideal for project-based work, specialized skills needed infrequently, or when you need to scale up or down quickly. The flexibility premium (higher hourly rate) is often worth it for short-term needs. For roles where you need consistent 40+ hours/week, employees are typically more cost-effective once you factor in the stability and institutional knowledge they provide.
Misclassification Risk
The IRS, DOL, and many states actively audit worker classification. Penalties for misclassifying employees as contractors include back employment taxes, interest, and civil fines. If you control when, where, and how someone works — they are likely an employee regardless of contract language. Consult an employment attorney or CPA before making classification decisions.