Free ForeverNo SignupContractor vs FTEUpdated 2026

Contractor Cost Calculator

Compare the true cost of contractors vs. full-time employees — the hourly rate is only part of the picture.

Contractors appear expensive on an hourly basis but have no benefits, no payroll taxes, and can be ramped down quickly. Full-time employees cost 1.25–1.4× their salary when you add taxes and benefits. For short-term work (under 6–9 months), contractors are often cheaper. For sustained roles, FTEs typically win on cost.

Contractor Hourly Rate

Hourly rate charged by contractor or agency

Hours Per Week

Hours the contractor works per week

Contract Duration (Weeks)

How many weeks the engagement lasts

Equivalent FTE Annual Salary

What you'd pay a full-time employee for the same role

FTE Overhead Rate

Taxes + benefits + equipment overhead as % of salary (typically 25–40%)

The Formula

Contractor Cost = Rate × Hours × Weeks. FTE Cost = Salary × (1 + Overhead%) × (Weeks ÷ 52)

In plain English

Contractor cost = hourly rate × hours × weeks. FTE prorated = (salary × overhead multiplier) × (weeks/52).

Worked Example

$120/hr × 40h × 26wk = $124.8K contractor. FTE: $130K × 1.3 = $169K/yr × 26/52 = $84.5K. Contractor $40.3K more expensive.

Contractor vs FTE: When Each Makes Sense

Contractors make sense for: well-defined projects with a clear end date, specialised skills needed for less than 6 months, peak workloads without permanent demand, or testing whether a role is needed before committing.

FTEs make sense for: ongoing operational roles, positions requiring institutional knowledge, anything 6+ months, and when you want the employee aligned with long-term company goals.

6–9 months

Typical break-even duration (contractor vs FTE)

1.25–1.4×

FTE overhead multiplier (taxes + benefits)

20–40%

Typical contractor premium over FTE hourly cost

Benefits, equipment, severance for contractors

Contractor vs FTE Cost Comparison

Duration	Contractor Economics	FTE Economics
< 3 months	Better (no overhead)	Worse (ramp cost)
3–6 months	Comparable	Comparable
6–12 months	Expensive	Cheaper (amortised)
12+ months	Very expensive	Much cheaper

Source: Bureau of Labor Statistics Contingent Worker Study 2024 · SHRM Workforce Report

Common Mistakes

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Ignoring agency markup on contractors

An agency contractor at $120/hr may cost the agency $70–80/hr in base pay. The markup (40–70%) is a significant premium. Consider direct freelancers to reduce cost when the agency relationship isn't adding value.

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Not including contractor management overhead

Contractors require onboarding, briefing, quality review, and integration time — just like employees, but often without institutional knowledge shortcuts. Factor in the manager's time to supervise contractor work.

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Using contractors to avoid hard headcount decisions

If a role is clearly permanent and strategic, a contractor is a temporary and expensive solution. Make the headcount decision and hire the FTE. Contractor spend on permanent roles often exceeds what FTE hiring would have cost.