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Subcontractor vs Employee Cost Calculator

The true cost of a W2 employee is 25–40% above salary. Compare side-by-side with a 1099 subcontractor — FICA, unemployment, workers comp, benefits, PTO, and admin all included.

Corp Tax Rate21%
SE Threshold$400
FICA Cap 2024$168,600

Worker Details

W2 Benefits & Burden Rates

W2 Annual Cost
$98K
$47.06/hr effective
1099 Annual Cost
$94K
$45.07/hr effective
True Cost Premium
$4,139
W2 costs more
W2 Overhead Rate
31%
Above base salary

W2 Employee

Higher Cost
Base salary
$75,000
Employer FICA (7.65%)SS 6.2% + Medicare 1.45%
$5,738
Unemployment insurance2.5% (FUTA + SUTA avg)
$1,875
Workers' compensation2% of salary
$1,500
Health insurance (employer)
$6,000
401(k) match3% of salary
$2,250
PTO (15 days)
$4,327
Payroll admin$100/mo
$1,200
Total Annual Cost$97,889

1099 Subcontractor

Lower Cost
Contractor rate (25% premium over W2 equiv)Contractor covers own SE tax, benefits, equipment, overhead
$93,750
Employer FICANone — contractor pays own self-employment tax
—
Unemployment insuranceNone — contractors not covered by UI
—
Workers' compensationVerify contractor has own coverage
—
Health insuranceNone — contractor provides own
—
401(k) matchNone
—
PTONone — contractors bill for time worked only
—
Payroll adminMinimal — just 1099-NEC filing at year end
—
Total Annual Cost$93,750

Misclassification Risk

Using a 1099 when the worker should be W2 is one of the most common (and expensive) contractor mistakes. The IRS and DOL look at control and economic reality — not just what your contract says.

1099 is probably NOT appropriate if:

•You control when, where, and how they work (not just the result)
•They work exclusively or primarily for you
•You provide tools, equipment, or training
•The work is central to your core business
•The relationship is ongoing and indefinite

Misclassification penalties: back taxes + 100% of FICA + interest + potential criminal charges. Consult an employment attorney before classifying.

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