Employee vs Contractor: What Should You Compare?

Calculate the employee package first

Suppose an employee offer includes a $100,000 salary, a $5,000 bonus and estimated benefits of $10,000.

Your total employee package is approximately:

$100,000 + $5,000 + $10,000 = $115,000

That gives you a better baseline than comparing the contract against the $100,000 salary alone.

Then calculate realistic contractor revenue

Suppose the contractor offer is $700 per day.

You expect to bill 5 days per week for 46 weeks per year.

Annual contract revenue would be:

$700 × 5 × 46 = $161,000

That looks substantially higher than the $115,000 employee package.

But we are not finished.

Deduct business costs

Suppose you expect to spend $5,000 per year running your contracting business.

Your revenue after those business expenses becomes:

$161,000 − $5,000 = $156,000

Again, this is before personal tax.

Decide how much additional contractor buffer you need

Now ask a more useful question:

How much more than the employee package would I want the contract to generate before I consider the extra uncertainty worthwhile?

Suppose you choose a 15% buffer.

Take the employee package plus the business expenses that the contract needs to cover:

$115,000 + $5,000 = $120,000

Then add 15%:

$120,000 × 1.15 = $138,000

Under those assumptions, your contractor revenue target is around:

$138,000 per year

The $700 day-rate offer produces $161,000, so it exceeds that threshold.

What contractor rate would match the employee offer?

You can also calculate the contractor day rate required to reach that $138,000 target.

At five billable days a week for 46 weeks:

5 × 46 = 230 billable days

Then:

$138,000 ÷ 230 = $600/day

That means a contract paying approximately $600 per day reaches your selected compensation and risk assumptions.

A $700 day-rate offer is above that.

The higher number does not automatically mean you should take the contract

There are things a calculator cannot decide for you.

One role may offer more stability. Another may give you greater flexibility. You might care strongly about paid leave, career development, autonomy, remote work or the ability to work with multiple clients.

Price My Time helps compare the financial structure of the two offers.

It does not decide which job is better for your life.

Personal tax is separate

Employee and contractor tax treatment can vary dramatically between countries and business structures.

That is why our universal comparison deliberately does not tell you what your exact take-home pay will be.

If tax is likely to materially affect your decision, you should assess it based on your own location and circumstances.

Compare your two offers

The Employee vs Contractor Calculator lets you put both offers side by side and see:

• •your employee package
• •contract revenue
• •revenue after business expenses
• •your recommended contractor threshold
• •the hourly or day rate required to match your employment package

A good comparison should make uncertainty visible

One of the most useful things you can do is change your assumptions.

Try 46 working weeks instead of 50. Increase expenses. Change your desired risk buffer.

If a contract only looks attractive when every assumption is extremely optimistic, that tells you something important.

It can also help to read How to Convert Salary to a Contractor Rate and Contractor Day Rate vs Salary: How to Compare Them Properly