Harvest
Time Tracking
Sign up free

Contractor vs Employee Hourly Rate

Harvest empowers contractors to accurately track expenses and manage projects, ensuring they set competitive rates that account for taxes and benefits.

Try Harvest Free

What should you charge per hour?

Most freelancers and consultants dramatically undercharge. This calculator accounts for what most people miss: non-billable time, taxes, and overhead.

$
Accounting for vacation, holidays, sick days
60%
Most freelancers can bill 50-70% of their time. The rest goes to admin, marketing, proposals, and learning.
$
Software, insurance, equipment, accounting, taxes beyond income tax, etc.
Your break-even rate $0
Recommended rate (+20% buffer) $0
Billable hours per week 0h
Equivalent daily rate $0

Start tracking your billable hours

Walk through the entire flow below. Start a timer, check your reports, and create a real invoice — all in three clicks.

Go ahead — start tracking!

One click and you're timing. Try it right here: start a timer, add an entry, edit the details. This is exactly how it feels in Harvest.

  • One-click timer from browser, desktop & mobile
  • Works inside Jira, Asana, Trello, GitHub & 50+ tools
  • Duration or start/end — your call
  • Day, week & calendar views to stay on top of it all
  • Friendly reminders so no hour gets left behind
Acme Corp
Website Redesign
Homepage layout revisions
1:24:09
Content Strategy
Blog calendar planning
1:30:00
SEO Audit
Technical audit report
0:45:00
Brand Guidelines
Color system documentation
2:15:00
Logo Concepts
Initial sketches round 1
1:00:00
Today's total 6:54:09

Understanding Contractor vs Employee Compensation

When comparing contractor and employee hourly rates, it's crucial to understand the underlying compensation structures. Employees typically receive a salary that includes benefits such as health insurance, retirement contributions, and paid leave, which can equate to 20-30% of their total compensation package. In contrast, contractors do not receive these benefits and must account for them in their hourly rates to ensure they cover living expenses and have a safety net for taxes and benefits.

Contractors often charge 50-100% more per hour than employees to cover the costs of health insurance, self-employment taxes, and retirement savings. For instance, a contractor might set an hourly rate of $75 to $100 if an employee with a similar role earns a $50 per hour equivalent. This adjustment reflects the added costs contractors bear, including home office expenses and compliance costs, which tools like Harvest can track efficiently.

Calculating Contractor Hourly Rates

A common question is how to calculate an appropriate hourly rate for contractors. The formula involves considering all expenses typically covered in an employee's salary package. First, identify the annual salary equivalent for a full-time employee in a similar role. Next, add the cost of benefits (20-30% of salary), self-employment taxes (approximately 15.3% in the U.S.), and additional business expenses.

Once these factors are compiled, divide the total by the number of billable hours expected in a year. For example, if the annual costs are $100,000 and the contractor aims for 1,500 billable hours, the hourly rate would be approximately $67. Harvest can assist contractors in managing these expenses and tracking billable hours through its robust time-tracking capabilities, ensuring accurate rate setting.

Impact of Taxes and Benefits on Hourly Rates

Taxes and benefits significantly impact the hourly rates for both contractors and employees. Employees benefit from employer-contributed payroll taxes and benefit plans, often amounting to an additional 7.65% for Social Security and Medicare taxes. Contractors, however, must cover the full 15.3% self-employment tax, necessitating higher rates to maintain equivalency.

Moreover, contractors need to consider additional expenses such as health insurance premiums, which can vary widely but often average $500 per month for individual coverage. This financial burden requires contractors to set rates that not only cover these expenses but also ensure profitability, which Harvest supports by providing detailed expense tracking and comprehensive reporting tools.

Market Influences on Contractor Rates

Market conditions can greatly influence contractor rates compared to employee salaries. Economic downturns may push more individuals towards freelance work, increasing competition and potentially driving rates down. Conversely, specialized skills in high demand can allow contractors to command premium rates.

Contractors must also remain agile, adapting to industry trends and market needs to optimize their earnings. Harvest facilitates this by offering integrations with platforms like Asana and Trello, enabling contractors to efficiently manage multiple projects and adjust their work strategies according to market demands.

Explore Harvest for Contractor Rate Management

Harvest helps contractors track expenses and manage projects, ensuring competitive rates against employee salaries.

Harvest dashboard showing contractor expense tracking and hourly rate management.

Contractor vs Employee Hourly Rate FAQs

  • Contractors typically charge higher hourly rates to account for the lack of benefits and the need to cover self-employment taxes. Employees receive benefits that add 20-30% to their compensation, while contractors must include these costs in their rates.

  • Contractors pay the full 15.3% self-employment tax, unlike employees who share this burden with employers. This necessitates higher contractor rates to maintain equivalent take-home pay.

  • Calculate the employee equivalent salary, add costs for benefits and taxes, then divide by expected billable hours. For example, $100,000 in costs divided by 1,500 hours yields a rate of about $67 per hour.

  • Harvest tracks expenses like home office costs and compliance fees, providing detailed reports to ensure contractors set accurate hourly rates that cover all costs.

  • Consider benefits, taxes, market demand, and competition. Specialized skills in demand can allow for premium rates, while market shifts might require adjusting rates for competitiveness.

  • High demand for specific skills can increase rates, while economic downturns may lead to increased competition and potentially lower rates. Contractors should adapt to these changes.

  • Harvest provides tools for tracking time and expenses, integrating with popular project management platforms, and generating reports that help contractors manage their workload and set competitive rates.