Loaded employee / month
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Employee vs Contractor Cost Comparison Tool
Fully loaded W-2 cost versus 1099 bill rate for the same monthly hours.
Page updated 2026-09-04.
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Contractor / month
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Employee minus contractor
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Loaded employee cost vs. contractor billing, same monthly hours
A $90,000/year employee with a 28% burden rate (payroll tax, benefits, tools) costs $9,600.00/month fully loaded (annual salary / 12 x 1.28). Covering the same 140 hours/month with a contractor at an $85/hour bill rate costs $11,900.00/month. In this example, the employee is $2,300.00/month cheaper than the contractor.
That result flips easily with small changes: a lower contractor rate, fewer monthly hours needed, or a higher employer burden percentage can each swing the comparison the other way -- this isn't a fixed conclusion about employees vs. contractors generally, just this specific rate and hours combination.
The 28% burden rate is doing a lot of work in this comparison: it represents the true cost of an employee beyond salary (payroll taxes, health insurance, retirement match, equipment, software licenses) that a contractor's bill rate is meant to already include from the contractor's side.
What this cost comparison doesn't decide
Cost compare only. Classification rules are legal, not a rate sheet. Whether a worker can legally be classified as a contractor versus an employee is governed by IRS and state labor rules based on the nature of the work relationship, not by which option is cheaper -- misclassification carries real legal and tax risk regardless of what this cost comparison shows.
This also doesn't account for non-cost factors: contractors typically offer more flexibility and less management overhead but less availability and institutional continuity than employees.
Employer burden rate varies significantly by location, benefits package, and company size -- 28% is a reasonable planning midpoint, but confirm your actual burden rate before trusting this comparison for a real hiring decision.
If the decision comes down to hourly rate
If you're the one setting a contractor or freelance rate rather than comparing to a hire, the Freelance Rate Calculator works from target income backward to an hourly number.
If turnover risk on the employee side is a factor in this decision, weigh it against the Employee Turnover Cost Estimator.
Frequently Asked Questions (FAQ)
How is the $9,600 loaded employee cost calculated?
(Annual salary / 12) x (1 + burden rate) = ($90,000 / 12) x 1.28 = $7,500 x 1.28 = $9,600. The burden rate accounts for payroll tax, benefits, and tools on top of base salary.
How is the $11,900 contractor cost calculated?
Monthly hours x hourly bill rate = 140 x $85 = $11,900. It assumes the contractor bills for all 140 hours at the flat rate with no burden adjustment, since the bill rate is meant to already include the contractor's own overhead.
What would make the contractor cheaper instead?
A lower bill rate, fewer required monthly hours, or a higher employer burden percentage on the employee side would each shift the comparison. At this employee's numbers, a contractor rate below about $68.57/hour ($9,600 / 140) would flip the result.
Does this determine whether a worker should legally be a contractor?
No. Cost compare only. Classification rules are legal, not a rate sheet. Worker classification is governed by IRS and state tests based on control, independence, and the nature of the work -- not by which arrangement costs less.
Is 28% a typical employer burden rate?
It's a commonly used planning estimate, but actual burden rates range roughly 20-40% depending on benefits generosity, location-specific payroll taxes, and company size. Adjust it to your actual cost structure before relying on the comparison.
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