Payroll Guide
W2 vs 1099: How to Compare Salary and Contractor Rates
Google is already sending people to this site for w2 vs 1099 calculator and 1099 vs w2 calculator. The trap is treating a $75,000 salary as $36/hour (75,000 ÷ 2,080). That math ignores taxes, time off, and benefits.
Use the free W2 vs 1099 calculator with the walkthrough below.
The 2,080-hour shortcut is wrong
52 weeks × 40 hours = 2,080 paid hours only if you never take vacation, sick days, or holidays. W2 employees usually get paid for those days. 1099 contractors do not.
- 15 PTO days = 120 unpaid hours on the contractor side
- 10 holidays = 80 unpaid hours
- Together that is about 5 weeks of $0 income
Add the extra 7.65% self-employment tax
FICA is 15.3% total (Social Security 12.4% + Medicare 2.9%). W2 splits it: you pay 7.65%, your employer pays 7.65%. On 1099 you pay both halves. That extra 7.65% is the first adjustment in a fair comparison.
Worked example: $75,000 W2 vs $50/hour 1099
Assume 40 hours/week, 15 PTO days, 10 holidays, 4% 401k match, and $6,000 employer health contribution.
- W2 total value: $75,000 + 401k match + health ≈ $84,000
- W2 hours actually worked: 2,080 − 200 = 1,880 hours → about $44.68/hour of true value
- 1099 gross: $50 × 40 × 48 weeks (4 weeks unpaid) = $96,000
- After extra 7.65% FICA and $5,000 expenses: close to the W2 total, not a huge raise
Plug your numbers into the W2 vs 1099 calculator instead of using this example as a quote.
When 1099 still wins
- You can bill more than 40 hours, or a higher rate, without extra unpaid weeks
- You already have health coverage (spouse, marketplace subsidy, or VA)
- You have real business deductions that lower taxable income
When W2 still wins
- Rich PTO, holidays, and a 401k match
- Employer-paid health premiums
- You want overtime eligibility as a non-exempt employee
Frequently Asked Questions
Is 1099 always better than W2?
No. A higher 1099 hourly rate can still lose after self-employment tax, unpaid time off, health insurance, and retirement matching.
What is the 1099 markup over W2?
A common range is 20–40% above the W2 equivalent hourly rate. The right markup depends on PTO, holidays, employer 401k match, health benefits, and business expenses.
Do 1099 contractors get overtime?
Usually no. Overtime under the FLSA applies to non-exempt W2 employees. Independent contractors set their own rate and are generally not entitled to time-and-a-half.