Contractor vs employee cost calculator
An employee at $25 an hour costs you more than $25 an hour. Put in both rates and the hours, and see what each option really takes out of your account each year.
What an employee costs on top of wages
As an employer you pay 7.65% of wages in FICA (6.2% Social Security on wages up to $184,500 in 2026, plus 1.45% Medicare). You also pay federal unemployment tax: 6% on the first $7,000 of each employee's wages, usually 0.6% after the credit for paying state unemployment tax.
State unemployment tax depends on your state and your history. New employers get a set rate, and each state picks its own wage base. Put your state's rate in the calculator; the wage base here is $7,000, the federal floor, so states with a higher base will cost more. Workers' comp is required for employees in almost every state and is priced as a share of wages that depends on the job.
Cost does not decide the classification
Whether a worker is a contractor or an employee depends on how the work is done: who controls it, who carries the costs, and how permanent the relationship is. The IRS, the Department of Labor and your state each have a test. If someone is really an employee, calling them a contractor to save the payroll tax can cost you back taxes, penalties and interest.
Use this calculator to budget for the hire you need, then classify by the rules. The 1099 vs W-2 guide walks through the tests.
Questions people ask
How much does an employee cost on top of their wage?
At minimum, employer FICA of 7.65% of wages, federal unemployment tax (usually 0.6% of the first $7,000), state unemployment tax at your state's rate, and workers' comp. Benefits add more: across US private employers, benefits average about 30% of total compensation according to the Bureau of Labor Statistics.
Is a contractor always cheaper than an employee?
No. A contractor charges a higher rate because they pay their own self-employment tax, equipment and time off, so a contractor can cost more per year than an employee at a lower wage. Run both rates through the calculator to see which is cheaper for your hours.
Can I choose to make someone a 1099 contractor to save money?
No. Classification follows the IRS common-law test, the Department of Labor test and your state's rules, based on how the work is done. Misclassifying an employee can mean back payroll taxes, penalties and interest.
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