Contractor Hourly to Salary Equivalent

The most common freelance-pricing mistake is treating a $75/hr contractor rate as equivalent to a $150k W-2 salary ($75 × 2,000 hours). It is not. Two things eat the gap. First, most contractors do not bill 2,000 hours. Between sales, admin, invoicing, and between-project downtime, a typical solo realizes 1,500-1,800 billable hours per year. Second, the contractor has to cover benefits and payroll-tax overhead that a W-2 employer pays on top of the salary: health insurance, retirement contributions, paid time off, the employer share of FICA (7.65% under 26 USC 3111), and usually a few more.

This calculator converts a contractor hourly rate into the W-2 salary that matches it on a total-compensation basis. Enter your hourly rate, your realistic billable hours per year, and your benefits/overhead percentage. The output shows the gross annual revenue the rate generates and the equivalent W-2 salary that, grossed up for those same benefits and overhead, would match.

The overhead percentage is a user input reflecting your own cost structure, not a regulatory figure. Values depend heavily on your own health-coverage costs, retirement contribution targets, and what benefits you are comparing against. Use this when comparing a contract offer to a full-time salary offer, or when setting a rate from a target W-2 income. For the W-2 side, the withholding estimator handles take-home math. For the self-employment tax side of a contractor career, see the quarterly estimated taxes calculator.

Gross revenue = hourly_rate × billable_hours_per_year. Equivalent W-2 salary = gross_revenue / (1 + overhead_pct / 100). The divisor reverses the overhead uplift a contractor has to build into their rate, so the remaining number is comparable to a W-2 salary where the employer pays benefits on top.

The 2,080-hour full-year benchmark (40 hr × 52 weeks) is the standard used on Form I-9 and across federal wage regulations. Most solo contractors do not hit 2,080 billable because 10-25% of time goes to non-billable work: sales calls, proposal writing, invoicing, accounting, training, and between-project gaps. A steady mid-career solo often lands at 1,600-1,800; a first-year solo often lands at 1,200-1,400.

The overhead percentage is purely a user input. There is no canonical figure. Reasonable anchors to compute your own: employer FICA share is 7.65% of wages (26 USC 3111); marketplace health insurance premiums for a single filer vary widely by state and plan; employer 401(k) matches in BLS National Compensation Survey data average around 3-5% of salary; paid time off at 2-3 weeks is roughly 4-6% of salary. Sum the components that apply to your comparison.

Use this when deciding between a contract offer and a W-2 offer, when setting a contractor rate from a target income, or when a prospective client pushes back on your rate and you need a clean way to justify it. For the full decision (not just dollars), also consider benefits preferences, 401k match, job security, and the tax treatment of business expenses. For the W-2 take-home side, the withholding estimator covers it. For the self-employment tax obligation, the quarterly estimated taxes calculator handles Schedule SE and income tax together.