Contractor vs Employee Rate Calculator: Find Your Contracting Rate

Q: Do contractors need to charge more than employees?

Yes. Contractors must cover self-employment taxes, benefits, unpaid time, and business expenses, so their rates must be higher than an equivalent salary.

Q: How many billable hours do freelancers work per week?

Most freelancers average between 20 and 30 billable hours per week due to administrative work, marketing, and unpaid downtime.

Q: Is contracting always more profitable than employment?

Not always. Contracting offers flexibility and higher earning potential, but income can be inconsistent and includes additional financial risk.

Q: What tax rate should contractors use when comparing to employment?

US contractors should use 35–40% for the combined tax and expenses field: federal income tax, state income tax, self-employment tax (15.3%), and business expenses. Use 30–35% for lower income levels or zero-income-tax states, 40% for higher brackets or high-tax states.

This contractor vs employee rate calculator compares freelance income to a full-time salary. It helps freelancers and contractors determine the hourly rate required to match employee take-home pay.

Comparison model: Estimate employee take-home pay (salary − taxes) and compare it to contractor take-home pay after taxes + expenses, using realistic billable hours and working weeks.

Contractor rate benchmarks vs equivalent salary (2026)

As a reference before running the calculator — here's what contractors typically need to charge per hour to match common salary levels, assuming 30 billable hours/week, 48 working weeks, and 35% for taxes and expenses:

Equivalent Salary	Required Gross (35% tax/expenses)	Required Hourly Rate	Rate Premium vs Salary Equivalent
$50,000/yr	$76,923/yr	$53/hr	+54% above implied hourly
$75,000/yr	$115,385/yr	$80/hr	+54% above implied hourly
$100,000/yr	$153,846/yr	$107/hr	+54% above implied hourly
$125,000/yr	$192,308/yr	$133/hr	+54% above implied hourly
$150,000/yr	$230,769/yr	$160/hr	+54% above implied hourly

Assumes 30 billable hrs/week × 48 weeks = 1,440 billable hours/year. At 35% for taxes and expenses, divide target gross by 0.65 to get required revenue. Use the calculator below with your actual tax rate, hours, and weeks to get a personalised comparison.

Why contractors need to charge more than their salary equivalent

A contractor earning $100/hr does not take home the equivalent of a $100/hr employee. The gap comes from four costs employees don't see directly:

Self-employment tax: US contractors pay 15.3% SE tax on net earnings (covering both employer and employee Social Security/Medicare contributions).
No employer benefits: Health insurance, retirement contributions, and paid leave must be self-funded — typically adding $8,000–$20,000/year in costs.
Non-billable time: Admin, proposals, invoicing, and gaps between projects reduce effective billable hours. Most contractors bill 20–30 hrs/week, not 40.
Business expenses: Software, equipment, professional insurance, and accounting add 5–10% of gross revenue in overhead.

Combined, these factors mean contractors typically need to charge 40–60% more per billable hour than their equivalent salary implies. The benchmark table above and the calculator below account for all of these. For a detailed breakdown of your expense floor, use the break-even hourly rate calculator.

Employee Salary

Annual salary Estimated tax rate (%)

Contractor / Freelancer Income

Hourly rate Billable hours per week Working weeks per year Estimated tax + expenses (%)

Many contractors raise rates to reflect added risk and responsibility. Use our rate increase email generator to inform clients professionally.

Related Rate Calculators & Guides

Contractor Rate Guide — full methodology: SE tax, benefits, expenses, and the five-component formula
Freelance Rate Calculator — Contractor tab: salary to rate with full component breakdown
Freelance Hourly Rate Calculator
Break-Even Hourly Rate Calculator
Effective Hourly Rate Calculator
Day Rate Calculator
Monthly Retainer Rate Calculator
Project Rate Calculator

Frequently Asked Questions

Do contractors need to charge more than employees?

Yes. Freelancers must account for self-employment taxes, benefits, downtime, and business expenses that employees do not pay directly.

How many billable hours do freelancers work per week?

Most freelancers average 20–30 billable hours per week — not 40. The remaining time goes to admin, proposals, marketing, invoicing, and professional development. This is why contractors typically need to charge 40–60% more per billable hour than their equivalent employee salary suggests. Use the utilization rate calculator to model realistic billable hours before setting your rate.

Is contracting always more profitable than employment?

Contracting offers flexibility and upside potential, but also comes with income volatility and additional financial risk.

How much more should a contractor charge than their equivalent salary?

Contractors typically need to charge 40–60% more per billable hour than their equivalent salary would imply, to account for: self-employment tax (15.3% in the US), business expenses (software, insurance, equipment), unpaid downtime between projects, and non-billable time (admin, proposals, marketing). At 30 billable hours/week and 35% for taxes and expenses, a $100,000 salary equivalent requires approximately $107/hr as a contractor. Use the calculator above with your actual numbers.

What tax rate should contractors use when comparing to employment?

US contractors should typically use 35–40% for the combined tax and expenses deduction field — covering federal income tax, state income tax (varies), self-employment tax (15.3%), and business expenses. The higher end (40%) applies to higher income brackets or states with significant income tax. The lower end (30–35%) is more realistic for lower income levels or zero-income-tax states. Use the break-even hourly rate calculator to isolate the expenses component from the tax component for a more precise floor.