Determine the 1099 hourly rate required to match your current W-2 compensation.
Annual W-2 Gross Salary:
Total W-2 Benefit Value:
Employer Share of Taxes (7.65%):
Estimated Unpaid Days (PTO/Holidays):
Target 1099 Hourly Rate:
*Calculation includes the 7.65% self-employment tax offset, benefits value, and lack of paid leave.
Understanding the 1099 vs. W-2 Pay Difference
When transitioning from a W-2 employee to a 1099 independent contractor, many professionals make the mistake of accepting the same hourly rate. However, a $50/hour W-2 position is significantly more valuable than a $50/hour 1099 contract. This is due to "the hidden costs of employment" that a company typically covers for W-2 workers but shifts to the individual in a 1099 relationship.
Why a 1099 Rate Must Be Higher
To reach an "apples-to-apples" comparison, several factors must be added to your base hourly rate:
Self-Employment Tax: As a W-2 employee, your employer pays 7.65% for Social Security and Medicare. As a 1099 contractor, you pay the full 15.3%. You must increase your rate to cover this extra 7.65% "employer share."
Health Insurance: If your employer pays $500/month toward your premium, that is $6,000 in tax-free value you lose as a contractor.
Paid Time Off (PTO): W-2 employees get paid to take vacations and holidays. Contractors only get paid for the hours they bill. If you take 3 weeks of vacation, you lose 3 weeks of income.
Retirement Matching: 401k matches are direct cash contributions to your net worth that disappear in a 1099 setup.
Business Overhead: Software licenses, hardware, office space, and professional liability insurance are now your responsibility.
Calculation Example
If you currently earn $45.00 per hour as a W-2 employee with 15 days of PTO and $500/month in benefits, your "true" value is much higher. After factoring in the employer's tax contribution and the cost of business expenses, your equivalent 1099 rate would likely need to be roughly $62.00 to $65.00 per hour just to maintain the same standard of living.
The "Rule of Thumb"
Most career experts suggest that a 1099 hourly rate should be 25% to 50% higher than a W-2 hourly rate. Our calculator uses a specific formula to account for the exact dollar value of your benefits and the billable hour reduction caused by unpaid leave to give you a more accurate target.
function calculateDifference() {
// Inputs
var w2Rate = parseFloat(document.getElementById("w2Rate").value);
var hoursPerWeek = parseFloat(document.getElementById("hoursPerWeek").value);
var ptoDays = parseFloat(document.getElementById("ptoDays").value);
var benefitsValue = parseFloat(document.getElementById("benefitsValue").value);
var retirementMatch = parseFloat(document.getElementById("retirementMatch").value);
var bizExpenses = parseFloat(document.getElementById("bizExpenses").value);
if (isNaN(w2Rate) || isNaN(hoursPerWeek)) {
alert("Please enter valid numbers for the hourly rate and hours per week.");
return;
}
// W-2 Annual Calculations
var annualW2Salary = w2Rate * hoursPerWeek * 52;
var annualBenefitsValue = (benefitsValue * 12) + retirementMatch;
var employerTaxShare = annualW2Salary * 0.0765; // Employer's half of FICA
// Total W-2 "Package" Value
var totalW2Value = annualW2Salary + annualBenefitsValue + employerTaxShare;
// 1099 Billable Hours Calculation
// Total possible hours minus PTO and estimated 10 Federal Holidays (5 days each week for simplicity)
var totalUnpaidDays = ptoDays + 10;
var weeksOff = totalUnpaidDays / 5;
var billableWeeks = 52 – weeksOff;
var totalBillableHours = billableWeeks * hoursPerWeek;
// 1099 Expenses
var annualBizExpenses = bizExpenses * 12;
// Required 1099 Gross
// We need to cover the W-2 value + the business expenses
var target1099Gross = totalW2Value + annualBizExpenses;
// Equivalent 1099 Rate
var equivalentRate = target1099Gross / totalBillableHours;
// Display Results
document.getElementById("resW2Salary").innerText = "$" + annualW2Salary.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resW2Benefits").innerText = "$" + annualBenefitsValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resTaxBurden").innerText = "$" + employerTaxShare.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resUnpaidDays").innerText = totalUnpaidDays + " Days";
document.getElementById("resFinalRate").innerText = "$" + equivalentRate.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + " /hr";
document.getElementById("results").style.display = "block";
}