Choosing between contract work and full-time employment is one of the biggest financial decisions you can make. Each has distinct advantages, and the best choice depends entirely on your situation.
The hourly rate gap
Contractors typically charge 30–50% more per hour than equivalent employees earn. This is because contractors must cover their own:
- Self-employment tax (15.3% vs 7.65% for employees)
- Health insurance (average $6,000–$20,000/year)
- Retirement contributions
- Paid time off (the value of 15–25 vacation days)
- Business expenses (equipment, software, workspace)
As a rule of thumb: your contractor rate should be at least 1.5× the equivalent employee hourly rate to break even.
The contractor advantage
- Higher gross income potential
- Flexibility — choose your clients and schedule
- Multiple income streams
- Tax deductions for business expenses
- No office politics or bureaucracy
The employee advantage
- Stability and predictable income
- Employer pays half of payroll taxes
- Benefits package (health, dental, vision, 401k)
- Paid time off
- Career development and training
- Legal protections and employment law coverage
The real cost calculation
To fairly compare a $100,000 employee salary vs $80/hr contract rate:
- Employee total comp: $100,000 + ~$25,000 benefits = $125,000
- Contractor gross: $80 × 1,920 billable hours = $153,600 — minus $30,000 expenses/taxes = $123,600 net
In this example, they're nearly equal — but the employee has more security and less risk.
Calculate your rate: Use our Freelance Rate Calculator to find the minimum rate you need to match your employee compensation, or compare offers with our Salary Comparison tool.