Contractor vs Full-Time Salary Comparison

Contractor vs Full-Time: The True Comparison

Comparing a contractor rate to a full-time salary requires accounting for the hidden value of benefits and the additional costs contractors bear.

The Benefits Gap

A full-time employee's total compensation typically includes 25-40% additional value beyond the base salary:

Benefit	Typical Annual Value
Health insurance (employer)	$7,000-$15,000
401(k) match	$3,000-$10,000
Paid time off (20 days)	7.7% of salary
Paid holidays (10 days)	3.8% of salary
Employer payroll taxes	7.65% of salary
Life & disability insurance	$1,000-$3,000
Stock options/RSUs	Varies widely

Side-by-Side Example

Full-time offer: $130,000 annual salary

Base salary:         $130,000
Health insurance:    +$12,000
401(k) match (4%):   +$5,200
PTO value (20 days): +$10,000
Paid holidays:       +$5,000
Payroll taxes:       +$9,945
Total comp:          $172,145

Equivalent contractor rate:

$172,145 / 1,880 billable hours = $91.56/hour minimum
With 70% utilization: $172,145 / 1,316 = $130.88/hour

So a $130,000 salary is roughly equivalent to a $91-$131/hour contract rate, depending on utilization.

When Contracting Wins

• Rate exceeds the equivalent calculation above
• You maximize tax deductions (home office, equipment, travel)
• You value schedule flexibility and project variety
• You can maintain consistent client work (high utilization)

When Full-Time Wins

• Stable income and predictable cash flow
• Employer-subsidized benefits (especially health insurance)
• Stock options or RSUs with upside potential
• Paid learning time, conferences, and career development
• No time spent on sales, invoicing, or business admin