What a salary includes that a contract does not
A salary is only part of what an employer spends on you. Add benefits, paid leave and the employer share of payroll costs, and the real package is often well above the headline figure. As a contractor, you pay for those yourself and also carry the risk of gaps between contracts.
The calculator adds these items, then spreads the total over the hours you can truly bill. That is why the equivalent rate usually comes out at well over the plain hourly wage, even before you add a premium for risk.
The formulas
Total value to replace
Total = Salary × (1 + Benefits % ÷ 100 + Employer costs % ÷ 100) + Expenses
Contract rate
Rate = Total ÷ (Weeks × Hours per week × Billable share ÷ 100)
Simple hourly wage
Wage = Salary ÷ 2,080
The 2,080 figure is the usual convention for a full-time year: 40 hours × 52 weeks.
Worked example
An engineer on an $80,000 salary estimates benefits at 25% and employer costs at 8%, and expects $6,000 of expenses. As a contractor, they plan 46 weeks at 40 hours and can bill 75% of them.
- Total value: $80,000 × 1.33 + $6,000 = $112,400.00.
- Billable hours: 46 × 40 × 0.75 = 1,380 hours.
- Rate: $112,400 ÷ 1,380 = $81.45 an hour.
- Simple wage: $80,000 ÷ 2,080 = $38.46, so the contract rate is about 2.12× the wage.
Comparing an offer fairly
- Look at the contract length. A six-month contract with no renewal needs a higher rate than a steady year-long one.
- Check who pays for what. Some contracts cover equipment or travel, which lowers your expense figure.
- Do not forget non-financial differences. Flexibility, career progression and job security all have a value for you that no formula captures.
- Check classification. Whether someone counts as a contractor or an employee is a legal question that depends on how the work is done. Get qualified advice if you are unsure.
Frequently asked questions
Is the "double the hourly wage" rule accurate?
It is a rough shortcut, and this example happens to land near it. The real multiple depends on your benefits, expenses and billable hours, so it is worth checking your own numbers.
Does this account for income tax differences?
No. It compares the pre-tax value of the two arrangements. Actual tax can differ between employment and self-employment, and rules vary by location, so ask a tax professional for an exact comparison.
How do I value my benefits?
Add what your employer pays for health cover and retirement contributions, plus the value of paid leave. Your benefits statement or HR team may be able to provide these numbers.
What if I am billing through an agency?
Enter the rate you receive, not the rate the client pays. Agencies keep a share of the billed rate, and your expenses still come out of what reaches you.