Calculator inputs
Example data table
| Scenario item | Employee example | Contractor example | Why it matters |
|---|---|---|---|
| Compensation basis | 60,000 salary + 5,000 bonus | 42 per hour | Sets the starting spend for each model. |
| Employer burden | 18% benefits, 8% payroll tax | 6% management overhead | Captures costs beyond base pay or billings. |
| Time assumptions | 40 hours, 52 weeks, 20 leave days | 35 hours, 48 weeks | Changes both total hours and productive hours. |
| Utilization | 82% | 90% | Reflects time actually producing valuable work. |
| Support costs | Office, software, equipment, training, insurance | Software, equipment, travel, misc | Shows often-missed indirect spending drivers. |
Formula used
Employee annual cost = salary + bonus + benefits + employer payroll tax + recruiting + equipment + training + office annual + software annual + insurance + other costs.
Contractor annual cost = hourly rate × weekly hours × weeks per year + management overhead + equipment + software annual + travel + other costs.
Productive hours = paid hours adjusted for leave, then multiplied by utilization for employees. Leave hours are estimated from paid hours and workdays per year. For contractors, productive hours = paid hours × utilization.
Cost per productive hour = total annual cost ÷ productive hours.
Break-even contractor rate = (employee total cost − contractor fixed costs) ÷ contractor hours adjusted for management overhead.
How to use this calculator
- Enter a currency symbol and your employee compensation assumptions.
- Add employer burden items such as benefits, payroll tax, software, office, and recruiting costs.
- Enter contractor bill rate, expected hours, weeks worked, utilization, and management overhead.
- Submit the form to compare annual cost, productive hours, and cost per productive hour.
- Use the break-even rate to test whether a contractor quote is cheaper than hiring an employee.
- Export the results using the CSV or PDF buttons for planning, approvals, or hiring discussions.
Frequently asked questions
1) What does this calculator compare?
It compares the estimated annual cost of hiring a full-time employee against engaging a contractor. It includes direct compensation, indirect overhead, productive hours, and a break-even contractor rate.
2) Why include utilization?
Utilization helps convert total spend into cost per productive hour. Two options can have similar annual cost but very different value if one produces more usable work time.
3) Are benefits and payroll taxes always required?
They are common employee costs in many organizations, but the exact percentages differ by country, plan design, and company policy. Replace the defaults with your real burden rates.
4) Does the tool decide worker classification?
No. This page estimates cost only. Worker classification rules depend on labor law, control tests, contract terms, and local regulations. Use legal or HR review for classification decisions.
5) Why is recruiting treated as a percentage?
Many teams estimate recruiting effort as a share of salary to cover sourcing fees, internal recruiter time, interviewing, and onboarding support. You can change it to match your hiring model.
6) What is the break-even contractor rate?
It is the hourly contractor rate where both options cost the same annually, after including contractor overhead and fixed contractor-related costs. Quotes below that rate favor the contractor model.
7) Should I include office and software costs?
Yes, when those costs are truly tied to the worker. Small recurring items add up over a year and often explain why a hiring decision feels more expensive than expected.
8) Can I use this for scenario planning?
Yes. Change utilization, weeks worked, overhead, or compensation to test best-case and worst-case scenarios. The result table and downloads make it useful for budget reviews and headcount planning.