"$85 an hour sounds amazing" — until you price what the salary side was quietly giving you. Comparing a contract offer to a salary offer is one of the most financially consequential decisions a freelancer makes, and gut feel gets it wrong in a predictable direction: people compare the contract gross to the salary number, forgetting that the salary came with health insurance, retirement matching, paid time off, and no 15.3% self-employment tax.

This calculator does the honest math. On the contract side: your hourly rate × realistic billable hours per year, minus the self-employment tax cost (15.3% on 92.35% of earnings). On the salary side: base salary plus the dollar value of health benefits, employer retirement contributions, and PTO days. The verdict names the winner, quantifies the gap, and gives you the breakeven contract rate — the hourly number at which the contract truly matches the salary.

Estimate only — not professional advice. This is a simplified comparison: it does not model income-tax differences, state taxes, job security, equity, or the value of flexibility. Use it to negotiate from evidence, not to make the final call alone.

Key takeaways

  • A contract rate must clear three hurdles the salary never faced: 15.3% self-employment tax (~14.1% of gross after the 92.35% base), zero paid time off, and zero employer benefits.
  • Salary total compensation = base salary + health benefits + retirement match + PTO valued at salary ÷ 260 × days — often 25–40% above the salary number itself.
  • The breakeven contract rate is roughly (salary total comp ÷ 0.859) ÷ annual billable hours — the 0.859 adjusts for SE tax; the example below lands near $92/hr against a $95k salary.
  • Billable hours are the silent variable: 30 hrs/week × 48 weeks = 1,440 hours, far below the 2,080-hour salary year — contract math must use realistic utilization, not 40×52.
  • Use the gap as negotiation leverage: if the contract trails by $9,000, that is the raise, signing bonus, or benefits stipend to ask for — priced, not wished.
$

The offered contract rate.

hrs

Honest billable average — not 40. Bench time and gaps count.

wks

52 minus unpaid time off, gaps between contracts.

$

Base salary number in the offer letter.

$

Employer-paid premiums. US employer family coverage often $15k–$25k; single ~$7k–$9k.

$

Employer 401(k) match or equivalent contribution.

days

Vacation + holidays + sick days the salary includes.

Annual billable hours—Billable hrs/week × working weeks.
Contract gross—Rate × annual billable hours.
SE tax on contract—15.3% on 92.35% of contract gross.
Contract net (after SE tax)—What the contract really pays before income tax.
Salary total compensation—Salary + health + retirement + PTO value.
Contract minus salary—Positive favors the contract; negative favors the salary.
Breakeven contract rate—Hourly rate that would make the contract match the salary.
Verdict—

How it works

  1. Enter the contract terms: hourly rate, realistic billable hours per week (be honest — 30, not 40), and working weeks per year (48 bakes in a month of unpaid gaps).
  2. The calculator annualizes the contract (rate × hours) and subtracts the self-employment tax cost: 15.3% on 92.35% of gross — about 14.13% of every contract dollar, a tax the salary side never pays directly.
  3. Enter the salary offer's full value: base salary plus the employer-paid health premiums, retirement match, and PTO days valued at salary ÷ 260 working days × days off. This is total compensation — the number the salary is really worth.
  4. The difference (contract net − salary total) names the winner and the gap in dollars. Positive favors the contract; negative favors the salary.
  5. The breakeven rate reverses the math: total salary compensation, grossed up for SE tax (÷ 0.859), divided by annual billable hours. That is the hourly rate at which the contract genuinely matches the offer — your walk-away number in negotiation.
  6. Remember what is <em>not</em> modeled: income-tax differences, state taxes, job security, equity/options, unpaid overtime culture, and the value of flexibility. Compare with the <a href="/1099-vs-w2-calculator/">1099 vs W-2 calculator</a> for the tax-structure view of the same decision.

Worked example

Worked example — $85/hr contract vs $95,000 salary:

  • Annual billable: 30 hrs × 48 wks = 1,440 hrs (not 2,080!)
  • Contract gross: $85 × 1,440 = $122,400.00
  • SE tax: $122,400 × 92.35% × 15.3% = $17,294.57
  • Contract net: $105,105.43 after SE tax, before income tax
  • Salary total comp: $95,000 + $9,000 health + $4,750 retirement + $5,480.77 PTO (15 days) = $114,230.77
  • Difference: −$9,125.34 — the salary wins by over nine thousand dollars
  • Breakeven contract rate: $114,230.77 ÷ 0.8587 ÷ 1,440 = $92.38/hr

The gut-feel error, quantified: "$122,400 vs $95,000 — the contract wins by $27k!" becomes, after SE tax and benefits, a $9k loss. The $85 rate felt generous because the comparison was rigged: gross vs base. The breakeven $92.38/hr is the number to take into negotiation — a $7.40/hr raise, a $9k signing bonus, or a health stipend closes it.

Second example — when the contract wins: same salary offer, but the contract is $110/hr at 32 hrs × 50 weeks (1,600 hrs): gross $176,000, SE tax $24,871.30, net $151,128.70 vs salary total $114,230.77 → contract wins by $36,897.93. At higher rates the SE-tax drag matters less in percentage terms and the flexibility premium starts to look earned. The breakeven here would have been just $83.14/hr — the $110 offer clears it comfortably.

The hours trap: rerun the first example at a fantasy 40 hrs × 52 weeks (2,080 hrs): contract net becomes $151,806 and "wins" by $37,575. That is how contractors talk themselves into bad deals — with billable assumptions no freelancer sustains. The 30×48 default is deliberately sober.

Frequently asked questions

How do I compare a contract rate to a salary?

In four steps: (1) annualize the contract on realistic billable hours (30/wk × 48 wks is a sober default, not 40 × 52); (2) subtract the self-employment tax cost (~14.13% of gross); (3) value the salary's total compensation — base + health + retirement + PTO at salary ÷ 260 × days; (4) compare the two nets. This calculator does all four and adds the breakeven rate — the hourly number where the contract truly ties.

Why does the salary always look better than I expect?

Because the salary number is not the salary's value. Employer-paid health coverage ($7k–$25k/yr), retirement matching, and paid time off typically add 25–40% on top of base pay — invisibly. Meanwhile the contract gross quietly owes ~14% in SE tax. The two adjustments compound: a $95k salary is really ~$114k of compensation, and a $122k contract is really ~$105k after SE tax. Gut feel compares $122k to $95k; honest math compares $105k to $114k.

What is a good billable-hours assumption for contract math?

25–32 hours/week × 46–50 weeks/year for most freelancers — roughly 1,200–1,600 annual billable hours. The 2,080-hour "full-time" year assumes every hour bills and no week goes unpaid, which describes no freelancer. New contractors should use the low end (pipeline gaps are real in year one); established ones with retainers can use the higher end. Whatever you assume, stress-test it 20% lower — that scenario is the one that has to still work.

How is the breakeven contract rate calculated?

Breakeven = (salary total compensation ÷ 0.8587) ÷ annual billable hours. The 0.8587 grosses the salary value up for self-employment tax (since 1 − 0.9235 × 0.153 ≈ 0.8587 — every contract dollar keeps ~85.9¢ after SE tax). Example: $114,230.77 ÷ 0.8587 = $133,034 gross needed; ÷ 1,440 hours = $92.38/hr. It is your walk-away number: below it, the salary wins on money alone.

Does this account for income tax differences?

No — deliberately simplified, and disclosed. Both sides owe federal income tax, and the differences (half-SE deduction for contractors, pre-tax 401(k) for employees, QBI deduction eligibility) are real but second-order next to the SE-tax and benefits gaps this tool prices. For the tax-structure deep dive, use the 1099 vs W-2 calculator; for the all-in burden, the effective tax rate calculator.

Should I value PTO at my full daily rate?

For the salary side, yes — a paid day off is worth salary ÷ 260, because you receive it without working. That is the standard valuation and the one this calculator uses. (Do not value the contract side's unpaid time off the same way — it is already accounted for in the reduced working-weeks input. Counting it twice is the most common error in DIY contract-vs-salary math.)

What about job security and benefits I cannot price?

Price what you can, then name what you cannot: unemployment insurance eligibility, disability coverage, legal protections, predictable income, equity upside, flexibility and autonomy, commute (or lack of it). The calculator deliberately stops at dollars so the intangibles get a conscious decision instead of a hidden one. A contract that loses by $5,000 on money can still be the right choice for autonomy — but now it is a priced choice, not a hopeful one.

The contract includes a benefits stipend — how do I handle that?

Add the stipend to the contract gross (it is taxable income to you), and reduce the salary-side health value by whatever coverage the stipend replaces. Example: a $6,000/yr health stipend on the $85/hr contract raises gross to $128,400, net to ~$110,260 — cutting the salary's lead from $9,125 to about $3,970. Stipends are increasingly common in long-term contracts precisely because they close this gap; always negotiate them as a named line item.

How should I use the gap in negotiation?

Convert the gap into an ask: a $9,125 shortfall is a $7.40/hr rate increase, a $9k signing bonus, a health stipend, or more billable hours guaranteed in the SOW. Present the math, not the feeling: "To match the total compensation of my current package, I'd need $92.38/hr — can we get there?" Employers negotiate against salary bands; contractors who bring total-comp math negotiate against the real number.

Is this financial advice?

No. This is a simplified comparison for negotiation and planning. It omits income-tax differences, state taxes, equity, job-security value, and career-trajectory effects — all of which can dwarf the computed gap. Verify benefit values against the actual offer letters, and for life-changing decisions, talk to a financial professional who can see your whole picture.

Sources

Last verified: 2026-09-25 Results are estimates for planning purposes only. Verify the figures independently before making financial decisions.

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