Subcontractor vs employee cost calculator: the real annual difference
A subcontractor's hourly rate looks like the whole story, and a W-2 wage looks like the whole story too — neither is. The subcontractor rate already has their overhead baked in; the W-2 wage does not, until you add your share of FICA, unemployment tax, workers' comp and whatever benefits you provide. This calculator adds those employer costs to the W-2 side and gives you one number to compare against the subcontractor's rate, plus the break-even rate where the two options cost the same.
This tool assumes classification is already settled. It compares cost, not legality. Whether a given worker can lawfully be paid on a 1099 in the first place is a separate question with real back-tax and penalty exposure if you get it wrong — see the W-2 vs 1099 field technicians guide before you use this calculator to make a hiring decision.
Who this is for
Owner-operators and office managers at HVAC, plumbing, electrical, landscaping and pest control businesses who are weighing a specific decision: keep paying a 1099 subcontractor a given hourly rate, or bring the work in-house as a W-2 technician at a given wage. It's most useful when you already have a subcontractor's quoted rate and a wage you'd realistically pay an employee for the same work.
It is less useful if you haven't yet settled whether the role can legally be a 1099 relationship at all, if you need the fully loaded billable rate you'd charge a customer for a technician's time (that's a different calculation — see the technician billable rate calculator), or if you want state-specific unemployment and workers' comp numbers already filled in. Those two figures vary too much by state and claims history to pre-fill responsibly, so you enter them yourself.
What you will enter
Every input maps to a variable in the formula further down. In plain language:
- Annual hours (Hannual)
- How many hours per year the work actually takes — one technician's full-time schedule, or just the hours a role currently costs you.
- Subcontractor rate (Rsub)
- What the 1099 subcontractor bills you per hour, all in.
- W-2 base wage (Wbase)
- The hourly wage you'd pay an employee doing the same work, before any employer costs are added.
- Employer FICA match
- The employer's share of Social Security and Medicare tax. Pre-filled at the current federal rate; you shouldn't need to change it.
- FUTA / SUTA (combined %)
- Federal and state unemployment tax combined, as a percentage of wages. This is the figure that varies most by state.
- Workers' comp rate (per $100 of payroll)
- Your workers' comp premium rate for this trade classification, entered as a percentage of wages. Pick a trade below for a rough starting range.
- Benefits (Bannual)
- Anything you pay a W-2 employee beyond wages and payroll taxes: health insurance contributions, retirement match, paid time off, or the value of tools/vehicle you provide. Enter 0 for anything you don't offer.
Calculate the difference
Estimates only, for informational purposes. This is not professional financial, legal or tax advice. Confirm your actual unemployment and workers' comp rates with the relevant state agency and your insurance carrier before making a hiring decision.
Why FICA, unemployment, workers' comp and benefits belong in the same number
A W-2 wage and a 1099 rate aren't measuring the same thing. The subcontractor's rate is meant to cover their own tax burden, insurance, downtime between jobs and profit margin — it's already a fully loaded number from their side. A W-2 wage is not: it's just the base pay before you add your share of Social Security and Medicare tax, unemployment tax, workers' comp premium, and whatever benefits you offer. Comparing the bare wage to the sub's rate isn't a fair fight; comparing the two fully loaded numbers is.
The size of that gap depends heavily on your state and your trade classification. Workers' comp in particular can swing the outcome: it commonly runs from a couple of dollars per $100 of payroll for lower-risk trades in low-cost states, to well over $10 per $100 for higher-risk classifications in high-cost states. The scenario table below holds everything else constant and only changes the workers' comp rate, so you can see how much that one input alone can move the answer.
Worked example: how the workers' comp rate alone can flip the decision
Using the hours, wage, FUTA/SUTA rate and benefits you entered above, this table recalculates the W-2 cost and break-even subcontractor rate at three illustrative workers' comp levels — a low-risk scenario, a mid-range scenario, and a high-risk scenario. Your actual rate for a real classification and state can fall anywhere in or beyond this range; use it to see the shape of the effect, not as a substitute for your real number.
| Per year | Low risk (2/$100) | Mid risk (6/$100) | High risk (12/$100) |
|---|---|---|---|
| Enter annual hours and a W-2 base wage above to see the scenarios. | |||
Methodology and sources
The calculator returns the difference between two annual costs:
DeltaCost = C_1099 - C_W2
C_1099 = H_annual x R_sub
C_W2 = (H_annual x W_base) x (1 + FICA + FUTA/SUTA + WC_rate) + B_annual
C1099 is simply annual hours times the subcontractor's bill rate. CW2 is annual wages, multiplied by one plus the combined employer burden rate (FICA plus FUTA/SUTA plus workers' comp, each as a decimal), plus annual benefits on top. The formula applies your entered rates to full annual wages rather than capping them at each program's wage base — see the FAQ below on why, and how to adjust for it if a technician's wages cross a wage base during the year.
Where each rate comes from
| Component | Current figure | Source |
|---|---|---|
| Employer FICA match | 7.65% (6.2% Social Security up to the $184,500 2026 wage base, plus 1.45% Medicare with no wage cap), unchanged from recent years. | irs.gov/taxtopics/tc751 |
| FUTA (federal unemployment) | 6.0% statutory rate on the first $7,000 of each employee's annual wages, reduced to a net 0.6% for employers in good standing in most states (about $42/employee/year). A handful of states with unpaid federal loan balances face a higher effective rate. | irs.gov/instructions/i940 |
| SUTA (state unemployment) | Set per state; new-employer rates are commonly in the 1%–3.5% range and experienced-employer rates commonly range from well under 1% to well over 10%, on a state-specific wage base that runs from $7,000 to over $70,000 depending on the state. | Your state's workforce/unemployment agency (rate notice) |
| Workers' compensation | Set per state and per NCCI (or state-specific) classification code. The national all-industry average is roughly $1.31 per $100 of payroll, but trade classifications for electrical, plumbing, HVAC, landscaping and especially roofing run well above the all-industry average, and vary sharply by state. | Your state's workers' comp rating bureau or carrier; see, for example, Washington L&I's published rate tables for how one state publishes this. |
| Typical benefits load (context only, not pre-filled) | BLS data for the construction industry puts total benefits at roughly 30% of total compensation nationally as of late 2025; a meaningful share of that is the legally required benefits (FICA, unemployment, workers' comp) already modeled separately above, so don't double-count it in the benefits field. | bls.gov/ecec |
What it leaves out: the subcontractor's own self-employment tax and insurance (their responsibility, not yours), one-time hiring or onboarding costs, and any state-specific paid-leave mandates or local payroll taxes not listed above.
Frequently asked questions
Does this calculator tell me whether I'm allowed to classify someone as a 1099 subcontractor?
No. This calculator only compares cost once classification is already settled, and assumes the 1099 arrangement you're modeling is legally correct. Misclassifying an employee as a subcontractor carries back-tax and penalty risk that has nothing to do with which option is cheaper. Work through the classification question first using the W-2 vs 1099 field technicians guide.
I don't know my workers' comp rate. What should I enter?
Pick the closest trade from the dropdown for a rough planning range, then confirm the real number with your workers' comp carrier or your state's rating bureau. Rates are set per state and per classification code and vary enormously, so a national range is only a starting point, not a quote.
Should FUTA and SUTA be entered separately or combined?
Enter one combined percentage. Federal unemployment (FUTA) is a small, fairly fixed cost for most employers; state unemployment (SUTA) is the variable part and depends on your state and your claims history. Add your state's assigned SUTA rate to the FUTA rate you actually pay and enter the total.
Why doesn't the calculator cap FICA, FUTA or SUTA at their wage bases?
To keep the formula simple, it applies your entered rate to the technician's full annual wages. Social Security tax, FUTA and most states' SUTA actually stop once wages cross a wage base for the year, so at higher wages this modestly overstates the true cost. If your technician's wages exceed a wage base, use a lower blended rate that reflects the average burden across the year instead of the statutory rate.
Does the 1099 side of the comparison include the subcontractor's own self-employment tax?
No, and it shouldn't. The subcontractor's bill rate is what you pay them; their self-employment tax, insurance and benefits are their own responsibility and are presumably already reflected in the rate they quote you. This calculator compares what leaves your bank account under each arrangement, not what the worker keeps.
Should I include tools, a vehicle or equipment in the benefits field?
If you provide a vehicle, tools or equipment to a W-2 technician that a subcontractor would supply themselves, include a reasonable annual value for it under benefits. Leaving it out understates the W-2 side whenever that gap exists.