| Cost item | $75K employee | $6K/month contractor | Decision effect |
|---|---|---|---|
| Headline annual cost | $75,000 salary | $72,000 invoices | Looks almost equal |
| Employer FICA | About $5,738 | Normally included in contractor economics | Employee cost rises immediately |
| Federal unemployment | Usually modest, plus state unemployment | Normally not employer-paid | Small individually, material in aggregate |
| Health insurance | Potentially thousands annually | Usually contractor responsibility | Can materially widen the gap |
| Retirement / bonus / leave | Often employer-funded in part | Usually contractor responsibility | Employee package grows |
| Laptop / software / workspace | Usually company supplied | Often contractor supplied | Another small loaded-cost difference |
| Capacity | Potentially near full-time | Depends entirely on retainer scope | Often the deciding variable |
| Exit flexibility | Lower | Often higher | Contractor stronger for uncertain demand |
| Institutional knowledge | Usually stronger | Can be narrower | Employee stronger for core operations |
Salary only.
Salary plus employer Social Security, Medicare and a typical maximum-credit FUTA amount, before state unemployment, workers’ compensation or benefits.
Illustrative BLS small-employer total-compensation proxy using the current relationship between wages and total benefits.
Recent employer-health data put average single-coverage premiums above $9,000 annually. Employees typically pay only part of that premium, leaving employers responsible for the majority.
A contractor’s $6,000 monthly invoice generally does not require the hiring company to add employer health coverage on top.
$101,000
1,800 hours a year
About $56
960 hours a year, about $75 an hour
1,440 hours a year, about $50 an hour
A contractor can be expensive by the hour and still be cheap for the business because you are purchasing only the capacity you need.
Paying $75 an hour for 15 useful hours a week can be far more rational than buying 40 hours of employee capacity when half of those hours have no high-value work attached to them.
If the business controls how the individual works, when the work is performed and the details of the relationship, simply paying through a 1099 does not automatically create an independent contractor.
A true contractor should look more like an independent business serving a client than an employee whose payroll tax treatment was changed.
Demand is uncertain, workload is fractional, expertise is specialized, deliverables are clearly defined, or you need capability immediately.
The work is permanent, near full-time, integrated into the company, constantly reprioritized and valuable enough to keep fully utilized.
The contractor works almost exclusively for you, follows your schedule, operates like a member of the team and is controlled in essentially the same way as an employee.
