Subcontractor vs Employee Cost Calculator
Compare the true total annual cost of hiring a subcontractor versus a full-time employee, factoring in payroll taxes, benefits, overhead, and productivity differences.
Formulas Used
Subcontractor Total Cost
Base Contract = Hourly Rate × Hours/Week × Weeks/Year Agency Fee = Base Contract × (Agency Fee % / 100) Subcontractor Cost = Base Contract + Agency Fee + Equipment Cost Effective Hourly = Subcontractor Cost / (Hours/Week × Weeks/Year)
Employee Total Cost
Social Security = min(Salary, $168,600) × 6.2%
Medicare = Salary × 1.45%
FUTA = min(Salary, $7,000) × 0.6% (net after state credit)
SUTA = min(Salary, $7,000) × 2.7% (avg new employer rate)
Workers' Comp = Salary × 1.5%
Retirement Match = Salary × Match %
Daily Rate = Salary / 260 working days
PTO Cost = Daily Rate × PTO Days
Holiday Cost = Daily Rate × Paid Holidays
Overhead = Salary × Overhead %
Employee Total Cost = Salary + SS + Medicare + FUTA + SUTA
+ Workers' Comp + Health Insurance
+ Retirement Match + PTO Cost + Holiday Cost
+ Other Benefits + Overhead
+ Training + Recruiting
Productive Hours = (52 × 5 × 8) − ((PTO + Holidays) × 8)
Effective Hourly = Employee Total Cost / Productive Hours
Assumptions & References
- Social Security (OASDI): Employer rate 6.2%; 2024 wage base $168,600. IRS Publication 15 (Circular E).
- Medicare (HI): Employer rate 1.45% on all wages; no wage base cap. IRS Publication 15.
- FUTA: Gross rate 6.0% on first $7,000; net 0.6% after the standard 5.4% state credit. IRS Form 940 instructions.
- SUTA: 2.7% on first $7,000 used as the U.S. average new-employer rate; actual rates vary by state and experience rating. U.S. DOL, State Unemployment Insurance Chartbook.
- Workers' Compensation: 1.5% of payroll used as a blended average; rates vary significantly by industry and state. NCCI Workers Compensation Statistical Plan.
- Working days: 260 days assumed (52 weeks × 5 days); used to compute daily salary rate for PTO/holiday costing.
- Overhead: Includes office space, IT, HR administration, and management time. Industry benchmarks typically range 15–30% of salary.
- Subcontractor taxes: The subcontractor is responsible for their own self-employment taxes (15.3%), business expenses, and benefits — not included in employer cost.
- No state income tax or local taxes are included; these vary by jurisdiction.
- Productivity: This calculator assumes equal productivity per hour for both worker types. Adjust hours/weeks to model productivity differences.
- Results are estimates for planning purposes. Consult a CPA or employment attorney for jurisdiction-specific compliance.