Know the Figures

Contractor vs Employee Cost

The day rate that looks expensive next to a salary that is not what it seems.

Replaces: Agency comparison spreadsheets

How to use it

Price both properly and compare. The employee side adds taxes, benefits, equipment and amortised recruiting to the salary, then divides by the days actually worked. The contractor side applies any agency markup to the day rate. The comparison is cost per day of real work, not salary against day rate.

Where the number comes from

  • Employee cost is salary plus employer taxes, benefits, equipment and workspace, plus recruiting spread over expected tenure.
  • Working days start from 260 weekdays and subtract paid leave and public holidays — you pay for those days and receive no work.
  • Contractor cost is the day rate plus any agency markup, multiplied by the days you actually need.
  • The break-even day rate is the employee’s full annual cost divided by the days required, then adjusted for markup.
  • The break-even days figure is the number of contractor days that would cost the same as employing someone for a year.

What goes wrong

The part most calculators leave out.

  • Worker classification is a legal question, not a cost one. Treating someone as a contractor who functions as an employee — set hours, your equipment, your direction, no other clients — creates back-tax and penalty exposure in most jurisdictions. Rules such as IR35 in the UK and the various US tests are strict and actively enforced.
  • Contractors carry no notice period, severance or redundancy cost. That flexibility has real value that this comparison does not price.
  • Nor does it price knowledge retention. A contractor takes everything they learned with them, and rebuilding that context has a cost that recurs with each engagement.
  • Day rates are for days worked. A contractor who is ill, on holiday or between engagements costs nothing — but also delivers nothing, and cover may cost more.
  • Agency markups are sometimes charged on top of the rate and sometimes taken out of it. Confirm which before comparing, or the contractor column will be wrong by the markup.
  • This is a cost model, not employment or tax advice. Classification, and the liabilities attached to getting it wrong, need a professional.

Why the 650 day rate is not expensive

A 95,000 salary attracts about 11,400 in employer taxes, 13,000 of benefits, 8,400 of equipment and workspace, and 5,300 a year of amortised recruiting — roughly 133,000 all in. After 34 days of leave and holidays, that is 226 working days, so each one costs about 589. A contractor at 650 a day plus a 15% agency markup costs 748 a day, or 169,000 for the same 226 days. The employee is cheaper by about 36,000 — but only because the work is continuous. Need 120 days instead and the contractor costs 90,000 against an employee you would still be paying for a full year.

Questions

How do I convert a salary into a fair day rate?
Take the fully loaded annual cost, not the salary, and divide by the days actually worked after leave and holidays. That figure is what an employee costs per productive day, and it is the only fair basis for comparison.
Why is the contractor comparison based on days needed?
Because that is the fundamental difference. An employee costs a full year regardless of how much work there is; a contractor costs only the days you use. Where the work is genuinely continuous, employment usually wins.
Is a contractor always more expensive per day?
Per day, usually yes — they carry their own taxes, insurance, equipment, pension and unpaid gaps out of that rate. Per year, it depends entirely on how many days you need.
Does anything I type get sent anywhere?
No. The whole calculation runs in your browser. Nothing is transmitted, stored, or logged, and there is no account to create.

Last updated .

Put this calculator on your site

Free to embed, on any site, commercial or not. No sign-up and no tracking script — the calculator runs in your reader’s browser exactly as it does here. All we ask is that you keep the credit line.

HTML

The small script resizes the frame as the reader changes inputs. Drop it if your CMS strips scripts — the calculator still works, it will just stay at a fixed height.

Related calculators