Why Compare W2 and 1099 Rates?
Comparing a full-time employee (W2) salary to an independent contractor (1099) hourly rate is not as simple as dividing a salary by 2,080 hours.
Independent contractors have significantly higher tax burdens and must pay out of pocket for benefits that full-time employees take for granted, such as paid time off, holidays, health insurance, and 401k matches.
💸The Self-Employment Tax Burden
In the United States, the FICA tax (which funds Social Security and Medicare) totals 15.3%. For W2 employees, the employer pays half (7.65%) and the employee pays the other half (7.65%).
If you are a 1099 contractor, you are both the employer and the employee, meaning you are responsible for the entire 15.3%. This is commonly referred to as the "Self-Employment Tax." Our calculator automatically deducts this extra 7.65% burden from the contractor side to give you a true apples-to-apples comparison against a W2 salary.
🏖️Calculating the Value of Time Off
When a W2 employee takes a two-week vacation, they still receive a paycheck. When a 1099 contractor takes two weeks off, their income for those weeks is exactly $0.
To accurately price an hourly contract rate, you must subtract the number of weeks you plan to take off (for vacation, sick time, and federal holidays) from the 52 weeks in a year.