1. What is the Permanent To Contractor Calculator?

The Permanent To Contractor Calculator helps convert a permanent employee salary to an equivalent contractor rate, accounting for benefits, taxes, and other factors that differ between employment types.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( \text{Permanent Salary} \) — Annual salary of permanent employee ($/year)
• \( \text{Hours} \) — Total working hours per year (hours/year)
• 1.5 — Multiplier accounting for benefits, taxes, and other employment costs

Explanation: The 1.5 multiplier accounts for the additional costs and benefits that permanent employees receive but contractors typically don't (health insurance, retirement contributions, paid time off, etc.).

3. Importance of Contractor Rate Calculation

Details: Calculating an appropriate contractor rate ensures fair compensation when transitioning from permanent employment to contracting, accounting for the loss of benefits and additional expenses contractors must cover themselves.

4. Using the Calculator

Tips: Enter your current permanent salary in dollars per year and your typical working hours per year. The standard full-time work year is typically 2080 hours (40 hours/week × 52 weeks).

5. Frequently Asked Questions (FAQ)

Q1: Why use 1.5 as the multiplier?
A: The 1.5 multiplier accounts for benefits (typically 25-30% of salary) plus additional self-employment taxes and business expenses contractors face.

Q2: Should I adjust the multiplier?
A: Depending on your benefits package and local taxes, you may need to adjust between 1.3-1.7. Higher multipliers for more generous benefits.

Q3: How many hours should I use?
A: Standard full-time is 2080 hours/year (40 hrs × 52 weeks). Adjust if you work different hours or want to account for vacation.

Q4: Does this account for all contractor expenses?
A: This is a baseline calculation. Additional expenses like health insurance, equipment, and business costs should be considered separately.

Q5: Is this rate before or after taxes?
A: The calculated rate is pre-tax, similar to how salary is quoted. Contractors must account for additional self-employment taxes.