By Tim King · Updated 17 September 2026

Employee Cost Calculator

True Cost of an Employee vs a Contractor Day Rate

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Employee gross salary

Employer payroll taxes (% of salary)

Employer pension (% of salary)

Benefits a year (insurance, bonus, perks)

Equipment, software and desk a year

Recruitment cost per hire

Expected years in role

Paid leave days a year

Average sick days a year

Working days a week

Working hours a day

Contractor day rate (optional)

Contractor days a year (blank for same as employee)

Agency margin on the rate (%)

Contractor equipment and onboarding a year

Result

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How the Employee Vs Contractor Cost Calculator works

This employee cost calculator shows what a hire really costs. Enter an employee's salary and the on-costs that sit on top of it, then the working pattern and days lost to holiday and sickness. The calculator gives the full annual cost, the mark-up over salary, the cost per productive day and hour, and the contractor day rate at which the two options cost the same. Add a contractor's day rate, days and any agency margin to see the comparison in money, with a table of day rates against the employee figure.

Employee cost calculator: the salary is only the start

A job advertised at 50,000 does not cost 50,000. On top of the salary sit employer payroll taxes, pension contributions, benefits, a laptop and software licences, a desk, and the recruitment fee that brought the person in. Then divide by the days they actually work, after holiday and sickness, not all 260 weekdays. Managers who compare a salary with a contractor's day rate without doing this nearly always get the answer backwards.

The formula

Annual cost = salary × (1 + payroll tax % + pension %) + benefits + equipment + recruitment ÷ expected years in role.

Productive days = 52 × working days a week − paid leave − sick days.

Cost per productive day = annual cost ÷ productive days. That figure is the break-even contractor day rate: a contractor charging exactly that for the same days costs the same.

Payroll tax is an input because it varies by country and by salary level and changes most years. Use the effective employer rate from your payroll software or tax authority, not a headline rate.

Worked examples

The first example uses the defaults: a 50,000 salary, 15% employer taxes, 3% pension, 2,000 of benefits, 3,000 of equipment and a 6,000 recruitment fee spread over three years. That comes to 66,000 a year, 32% above salary. With 33 days of leave and 5 sick days on a five-day week, the employee works 222 days, or 1,665 hours at 7.5 a day. That is 297.30 per productive day, or 39.64 an hour. A contractor at 450 a day for the same 222 days, plus 500 of onboarding, costs 100,400, which is 34,400 more.

The second example is a project that needs 100 days of work. A contractor at 280 a day costs 28,000 plus 500 of onboarding, 28,500 in total. The employee's cost for 100 productive days is 29,730, so the contractor is 1,230 cheaper, about 4%, and there is nobody to redeploy when the project ends.

How many times salary does an employee really cost?

At these default on-costs, between 1.24 and 1.46 times salary. Fixed costs such as equipment and recruitment weigh more on lower salaries. Full annual cost and break-even day rate by salary, at the calculator's default on-costs

Salary	Annual cost	On-cost	Per productive day	Per hour
25,000	36,500	46%	164	21.92
30,000	42,400	41%	191	25.47
35,000	48,300	38%	218	29.01
40,000	54,200	36%	244	32.55
45,000	60,100	34%	271	36.10
50,000	66,000	32%	297	39.64
55,000	71,900	31%	324	43.18
60,000	77,800	30%	350	46.73
65,000	83,700	29%	377	50.27
70,000	89,600	28%	404	53.81
75,000	95,500	27%	430	57.36
80,000	101,400	27%	457	60.90
85,000	107,300	26%	483	64.44
90,000	113,200	26%	510	67.99
95,000	119,100	25%	536	71.53
100,000	125,000	25%	563	75.08
105,000	130,900	25%	590	78.62
110,000	136,800	24%	616	82.16
115,000	142,700	24%	643	85.71
120,000	148,600	24%	669	89.25

How to read the result

Employee annual cost is the total with its parts: salary, employer taxes, pension, and one line for benefits, equipment and recruitment together.
On-cost above salary is the mark-up as a percentage. Between 20% and 40% is typical. Higher figures usually mean an expensive recruitment fee or a short expected tenure.
Productive days a year is the divisor for every per-day figure, with the hours in brackets.
Employee cost per productive day is the fair comparison against a contractor's rate.
Break-even contractor day rate is the rate at which both options cost the same for the same days.
Contractor annual cost, cost per day and Verdict appear when you enter a day rate. The verdict compares both options over the contractor's days, not the full year.

The table under the result sets day rates from 60% to 200% of break-even, each with the salary a permanent hire at that cost would earn.

Where the comparison is used

Finance teams use fully loaded cost for headcount budgets and to price internal recharges. Consultancies and agencies work backwards from it to set day rates, since a billable consultant must cover their cost on far fewer than 222 days. Freelancers use it the other way round, to turn a permanent salary into the day rate they need to charge.

Tips and pitfalls

Compare equal days. A contractor paid only for days worked on a 120-day project is not comparable to 222 employee days. Enter the contractor's real days.
Agency margins stack. An umbrella or agency margin of 15–25% sits on top of the contractor's rate. Enter it, or the contractor will look cheaper than they are.
Recruitment is per hire, not per year. A 6,000 fee over three years is 2,000 a year. If the person leaves after one, it is 6,000. Short tenure makes permanent hires expensive.
Part-time staff. Scale the salary and days, and keep equipment at the full amount. Two part-timers cost more than one full-timer; the FTE calculator shows the capacity side.

Work out leave entitlement with the annual leave calculator, convert the salary to an hourly rate with the salary to hourly calculator, and price exits with the severance calculator.

FAQ

What is the true cost of an employee?

Typically 1.25 to 1.4 times salary once employer taxes, pension, benefits, equipment and recruitment are included, and higher where social charges are steep. On a £50,000 salary that is £62,000 to £70,000 a year, or around £290 for each day the person is actually at work.

How do I convert a contractor day rate to a salary?

Multiply the day rate by the days worked, usually 220 or so after holiday, then divide by the employer's on-cost factor, around 1.3. A £450 day rate over 220 days is £99,000, which is roughly equivalent to a £76,000 salary once employment costs are included.

Is a contractor cheaper than an employee?

Per day, usually not: a comparable contractor's rate is normally 1.5 to 2 times the employee's daily cost. Over a short or uncertain piece of work a contractor is often cheaper in total because you pay only for the days needed and nothing for recruitment, notice or redundancy.

How many productive days does an employee work a year?

Around 220 in the UK: 260 weekdays less 28 days' holiday, 8 bank holidays and roughly 5 sick days. Training, internal meetings and admin reduce billable or project time further, which is why consultancies plan on 180 to 200 chargeable days.

What does IR35 change in this comparison?

If a contractor is inside IR35 the client or agency must deduct income tax and employee National Insurance from the fee and pay employer National Insurance on top, adding about 15% to the cost. Many contractors raise rates to compensate, so the gap between the two options narrows or disappears.