Salary ↔ Hourly ↔ 1099 Contract Rate Converter

A W-2 paycheck is the visible portion of a much larger compensation package. The number on your offer letter is just one line in a spreadsheet that also includes the employer's half of your payroll tax (7.65% of every dollar), the employer's contribution to your health insurance premium, the 401(k) match, paid time off, sick days, federally mandated unemployment insurance, workers' comp, and various smaller line items like life and disability coverage. The Bureau of Labor Statistics' Employer Costs for Employee Compensation survey puts the total at roughly 130–135 cents on the dollar for white-collar full-time roles. Senior engineering and finance roles often run higher.

A 1099 contract rate has no such hidden bundle. The hourly number on the invoice is the entire compensation package — there's no employer share of FICA paid behind the scenes, no health insurance kicking in automatically, no paid leave when you take a Friday off. To match the actual economic compensation of a W-2 offer, the contractor has to charge enough to cover all of the above out of the same invoice.

That's what this converter does. Enter any one of the three numbers — annual salary, hourly equivalent, or 1099 contract rate — and the other two recalculate so that the W-2 employer's all-in cost and the contractor's all-in revenue match. The "markup" you see between the hourly equivalent and the contract rate is the explicit, named version of the implicit compensation a W-2 employer is absorbing.

Two practical caveats. First, the markup is an average. Senior roles and roles with rich benefits packages (top-tier health plans, big 401(k) match, generous PTO) carry a higher effective load — adjust the slider in the advanced section if your situation is unusual. Second, the comparison is pre-tax compensation, not after-tax take-home; for that you need to layer on federal, state, and SE tax, which our freelance hourly rate calculator does.

The 7.65% employer FICA share

Social Security plus Medicare add up to 15.3% of wages. On a W-2 paycheck the employer pays half (6.2% Social Security on wages up to the annual wage base, plus 1.45% Medicare uncapped) and withholds the matching half from your check. As a 1099 contractor you pay both halves yourself — that's the 15.3% self-employment tax. Every salary-to-contract conversion has to recapture the 7.65% the employer was covering, otherwise the contract rate is mathematically worse than the salary even before benefits enter the picture.

Health insurance, dental, vision

The Kaiser Family Foundation's annual Employer Health Benefits Survey puts the average employer contribution to a family plan at $19,000+ per year, with the employee paying another $6,000+ out of pocket. For self-only coverage the employer share averages around $6,800. When you go 1099, that employer share disappears — you either buy ACA marketplace coverage, find a spouse's plan, or hope you can stay on COBRA for the first 18 months. Whichever path you take, the dollars come out of your contract rate.

The 401(k) match

A 4% safe-harbor match is common, with some employers going to 6% or 8%. That's free retirement money you'd lose by switching to 1099 unless you offset it with a Solo 401(k) or SEP-IRA. (You can, and you should — the contribution limits are higher than a W-2 employee's, but the cash has to come from somewhere.)

Paid time off and holidays

A typical full-time W-2 role includes 15–20 paid vacation days, 10 federal holidays, and 5–10 sick days. That's roughly 30–40 days of paid non-work each year, or 12–16% of your working time. A 1099 contractor only invoices for hours actually worked. If you plan to take three weeks off, your effective hourly rate has to be 6% higher than it would be if you worked 52 straight weeks at the same income target.

The rest (unemployment, workers' comp, disability)

Smaller line items but real ones. Federal unemployment is 0.6% of the first $7,000 of wages, state unemployment varies, workers' compensation is rolled into employer cost for most office workers. Together these typically add another 1–3% on top of the bigger items above. We bundle them into the default 30% benefits load.

Start with the contract markup we use in this tool:

• +7.65% — the employer half of FICA, now paid by the contractor as self-employment tax.
• +30% — the BLS average benefits load (health, retirement match, PTO, etc.) the contractor now provides themselves.

The combined multiplier is 1.3765 — so an $80,000 salary becomes a contract economic equivalent of roughly $52.94 an hour at a standard 40-hour, 52-week schedule. The bare hourly equivalent of the same $80,000 is $38.46. The contractor charges 37.6% more per hour — and earns the same total compensation.

There are three places this number shifts in the real world. Senior roles with rich benefits (often 35–40% load) push the multiplier toward 1.45 — a 45% premium. Roles with stripped-down benefits (gig platforms, hourly retail) carry less load — closer to 1.10 for someone who already has spousal health insurance and doesn't need a retirement match. And contractors who work fewer weeks per year carry an additional implicit markup, because the contract rate has to fit annual compensation into fewer billable hours.

Worth noting what's not in this markup: federal and state income tax. Both W-2 and 1099 income are taxed at the same federal bracket schedule on AGI. The conversion is pre-tax compensation equivalence, not after-tax take-home. For after-tax math (where deductible business expenses, the QBI deduction, and state choice actually matter), see our freelance hourly rate calculator.

Also worth noting what the 30% rule of thumb gets wrong by itself: it bundles SE tax and benefits into one number, which means people who don't need benefits (because a spouse has them) over-charge, and people whose benefits package is unusually rich under-charge. The slider in the advanced section is there so you can adjust the benefits load to your actual situation.

The most useful way to read the output of this tool is as a breakeven number. Whatever contract rate the converter returns is the rate at which a freelance week and a W-2 week produce the same total economic compensation. Below it, the W-2 job is paying more for the same hours. Above it, the freelance gig is paying more.

Three reasons to expect a 1099 offer to clear the breakeven by a meaningful margin before it's actually worth taking. First, income volatility — a 1099 contract that pays 10% over breakeven but only lasts six months produces less annualized compensation than a salary that's a hair below. Second, no employer-side career infrastructure: no learning and development budget, no manager chasing your career growth, no internal job ladder. Third, you're on the hook for everything from health-plan administration to quarterly tax payments to retirement-account selection. These have a real cost in time and decision-making bandwidth.

A reasonable rule of thumb: a freelance offer that clears the breakeven by under 15% is usually worse than the equivalent W-2, because the W-2 includes hidden compensation in stability and career structure that's hard to put a number on. A freelance offer that clears it by 30%+ is usually better — that buffer covers bench time, admin overhead, and the rest of the implicit cost. The 20–30% range is the genuinely interesting zone where personal circumstances dominate the math.

And there are situations where freelance can win even at breakeven or slightly below. Deductible business expenses (home office, equipment, software, professional services) lower your taxable income in ways a W-2 paycheck can't. The QBI deduction can save another 20% off the top for most self-employed workers. Geographic flexibility lets you live in a no-state-tax state while serving clients in California. If any of these apply, the breakeven shifts downward and 1099 income that looks like a wash on this tool is actually a meaningful raise after taxes.