Salary vs Contract Rate: What an Hourly Rate Must Be to Match a Salary

A $100,000 salary is not $48 an hour once you go independent. It is closer to $63. The naive formula everyone reaches for, salary divided by 2,080 hours, gives $48 an hour, and that number quietly ignores three real costs a contractor absorbs alone. You can convert any rate both ways in the Hourly to Salary Calculator, but read this first, because the raw conversion is exactly the trap.

Why $48 an hour is the wrong answer

The math behind $48 is real. There are 2,080 work hours in a standard year, 40 hours across 52 weeks, so $100,000 divided by 2,080 is $48. Run $48 back through the Hourly to Salary Calculator at a full 40-hour week and it returns $100,000, right back to the salary. The arithmetic is fine. The problem is what it leaves out.

A salaried job is not just the cash on the offer letter. Your employer also pays half of your payroll tax, funds a big share of your health premium, often matches part of your retirement, and pays you for holidays, vacation, and sick days you do not actually work. A contractor gets none of that. To end up in the same place, every one of those costs has to be baked back into the hourly rate. Add them up and the rate has to be about 1.31 times higher.

Gap one: the self-employment tax

An employee and an employer split payroll tax down the middle. The employee pays 6.2% for Social Security and 1.45% for Medicare, which is 7.65% total, and the employer quietly matches that same 7.65% (IRS Topic No. 751). A contractor is both sides of that deal, so they owe the full 15.3% as self-employment tax, 12.4% for Social Security plus 2.9% for Medicare (IRS Topic No. 554).

Here is the part most articles get wrong. A contractor does not pay 15.3% more than an employee. The employee already pays 7.65% out of their own check. The extra cost of being independent is the employer’s old half, roughly 7.65%, or about $7,650 on a $100,000 income. It is slightly less than that in practice, because self-employment tax is charged on 92.35% of net earnings and you deduct half of it before figuring income tax (IRS Topic No. 554), but 7.65% is the right ballpark. If you want the full mechanics, the self-employment tax explained guide walks through the 92.35% factor and the half-tax deduction line by line.

One wrinkle for higher earners. The 12.4% Social Security piece only applies up to the 2026 wage base of $184,500 (SSA, Contribution and Benefit Base). Above that, only the 2.9% Medicare portion keeps going, plus an extra 0.9% Medicare surtax on earnings over $200,000 for a single filer (IRS Topic No. 751). So for a $100,000 example the cap does not bite, but for someone matching a $250,000 salary the payroll-tax gap shrinks as a share of income, and the multiplier eases off a little.

Gap two: paid time off you never bill

An employee is paid for 2,080 hours but does not work all of them. A private-sector worker with about a year on the job averages roughly 11 vacation days, close to 8 paid holidays, and about 7 sick days, near 25 paid days off that a contractor does not get (BLS Employee Benefits Survey, Table 5). Those 25 days are about 200 hours. Take vacation as a contractor and no invoice goes out.

So the realistic denominator is not 2,080. It is closer to 1,900 billable hours once you strip out the roughly 180 to 200 hours of time off an employee is paid for and you are not. That single change, dividing by 1,900 instead of 2,080, lifts the rate by almost 10% on its own. And 1,900 is generous. Once you account for unbilled admin, sales calls, invoicing, and the gaps between contracts, a lot of independents realistically bill 1,700 to 1,900 hours. Drop to 1,800 and the same $119,535 of revenue needs $66 an hour.

Gap three: benefits you now buy yourself

Benefits are a bigger slice of pay than people expect. Across private industry, benefits run close to 30% of an employer’s total compensation cost (BLS Employer Costs for Employee Compensation). A contractor replaces the useful parts out of pocket.

Health insurance is the heavy one. The average employer-sponsored single plan cost about $9,325 in 2025, of which the worker chipped in roughly $1,440, so the employer covered about $7,885 (KFF 2025 Employer Health Benefits Survey). Family coverage averaged $26,993. Buy your own plan on the individual market and that whole premium lands on you. Then there is the retirement match. A common employer match is about 4% of pay, another $4,000 on a $100,000 salary, that simply stops existing when you go independent. Add the health gap and the match and you are self-funding roughly $11,885 a year that used to be someone else’s line item.

The W-2 salary versus the equivalent 1099 rate

Put the three gaps side by side and the comparison stops being close.

That $63 is not extra money in your pocket. It is the rate that gets you back to even with the salaried job after taxes and benefits. On paper it looks rich. Feed $63 into the Hourly to Salary Calculator at a full 40-hour week and it annualizes to $130,859, which sounds like a big raise over $100,000. It is not a raise. It is the sticker you have to quote to fund the benefits and unpaid days a $100,000 employee gets for free. The broader picture of what changes on a 1099 versus a W-2 sits in the 1099 vs W-2 taxes guide.

The rule of thumb

Strip the detail away and the shortcut is simple: take the naive salary-divided-by-2,080 rate and multiply it by about 1.25x to 1.5x. The $100,000 case lands at 1.31x, near the low end, because we replaced benefits at modest levels and kept billable hours at 1,900. Push benefits toward the full 30% of compensation, or bill closer to 1,800 hours, and you climb toward 1.5x fast. The two biggest levers are always the same: the extra 7.65% of self-employment tax, and the roughly 180 unpaid hours of time off you no longer bill.

The caveats. This build-up uses illustrative benchmarks, not your exact situation. The KFF single premium, the 4% match, and the 1,900 billable hours are averages, and yours will differ, sometimes a lot. An individual ACA plan can cost more or less than a group premium, and the self-employed health-insurance deduction and the QBI deduction can claw back some of the tax cost, which we left out to keep the core comparison clean. We also left out costs an employee never sees: no unemployment insurance, no workers’ comp, no employer-paid disability or life cover, your own equipment, and the income gaps between contracts. Those push the true matching rate toward the top of the 1.25x to 1.5x band, so treat $63 as a floor, not a ceiling.

Run your own number both directions in the Hourly to Salary Calculator, then keep reading: the self-employment tax explained guide unpacks the 15.3%, the 1099 vs W-2 taxes guide covers what else changes when you go independent, and the money decisions and comparisons hub lines this up against the other big money trade-offs.