Employee & Contractor Cost Calculator

What this tool does

CM8-21 turns a salary into a cost. You enter what you pay a person, what you pay on top of that person, and how much of the year they are actually available to do the work you are costing. It returns four numbers that most organisations never calculate: the fully-loaded annual cost, the cost per productive hour, the on-cost multiplier, and the charge-out rate you would need at a target margin. It then prices the same work as a contractor engagement so you can see the money side of that choice honestly.

Nothing about any country is built in. Employer social contribution rates, pension and superannuation rates, mandatory insurance, statutory leave and public holidays vary enormously and change every year, so every one of those inputs starts at zero and is yours to enter from an authoritative source for the place you employ people. The tool supplies the arithmetic and the structure; you supply the rates. It runs entirely inside this single file — no installation, no account, no network requests, and your payroll figures never leave your computer.

Why salary is not cost

Payroll is the visible part of employing someone. Statistical authorities that measure employment cost for a living define it much more widely. Eurostat's labour cost concept is "the total expenditure borne by employers for employing staff", and it comprises employee compensation (wages and salaries in cash and in kind, plus employers' social contributions), vocational training costs, and other expenditure such as recruitment and work clothing, plus employment taxes and less any subsidies. The International Labour Organization's labour cost statistics standard takes the same view: remuneration for work performed, fringe benefits, employers' social security expenditure, training costs and taxes regarded as labour cost all belong in the total.

Translated into a manager's language, the things that sit on top of a salary usually fall into three groups, and this tool asks for all three:

• Statutory and contractual percentages — employer social security or payroll contributions, pension or superannuation, mandatory accident and health insurance, and bonus or commission that is expected rather than exceptional.
• Fixed annual amounts per head — a laptop and tooling, software licences, a desk or share of the workspace, training courses, a phone and connectivity, and travel allowances.
• Amortised one-off costs — recruitment fees and onboarding, which are real money spent to obtain the person. Spreading them over expected tenure is more honest than charging them all to year one, and it also shows you what turnover really costs.

Paid leave and public holidays deserve a special note. They are not an extra cash cost — you already pay them inside the salary. What they do is reduce the number of hours you get, which is why this tool handles them in the time model rather than the cost model. Counting them twice is one of the commoner mistakes in home-made spreadsheets.

The on-cost multiplier explained

The on-cost multiplier is the simplest summary of employment cost that exists:

Workforce planners often quote a rule of thumb of roughly 1.25× to 1.4×. That band is a memory aid, not a fact, and it travels badly: it depends entirely on the statutory contribution rates where you employ, the pension you offer, whether you supply equipment and workspace, and how much you spend on recruitment. This tool never assumes the band. It computes the multiplier from what you entered and then tells you whether the answer happens to land inside, below or above the common range, so you can sanity-check your inputs rather than inherit somebody else's.

The tool shows two related figures. Payroll cost is salary plus the percentage on-costs — the number your finance system will recognise. Fully-loaded cost adds the fixed annual amounts and the amortised recruitment cost. A role paying 50,000 with 20 % employer contributions and 5 % pension has a payroll cost of 62,500 and a payroll multiplier of 1.25×; add 5,000 of equipment, software and workspace and the fully-loaded cost is 67,500, a multiplier of 1.35×. Both numbers are useful; only the second one should drive a pricing or make-or-buy decision.

Productive hours, and why 2,080 is a myth

The figure 2,080 comes from 40 hours × 52 weeks. It is the number of hours in a full-time contract, not the number of hours of work you receive. The OECD's definition of hours actually worked is explicit about this: hours worked exclude time not worked because of public holidays, annual paid leave, own illness, injury and temporary disability, maternity and parental leave, schooling or training, slack work, strikes and bad weather. Paid leave is a floor set by law in most countries — the ILO's Holidays with Pay Convention (Revised), 1970 sets a minimum of not less than three working weeks for a year of service, and public holidays sit on top of that — so the gap between contracted and worked hours is never small.

This tool builds the number in two stages. First it removes days: paid leave, public holidays, expected sick days and training days, each converted to hours at your own hours-per-day. Then it removes a percentage for non-productive time — internal meetings, email, administration, waiting, tidying up — because even the days someone attends are not fully spent on the work being costed.

A worked example: 37.5 hours a week over 5 days is 7.5 hours a day, and 37.5 × 52 gives 1,950 contracted hours. Take out 25 days of leave, 10 public holidays and 5 expected sick days — 40 days at 7.5 hours, or 300 hours — and 1,650 attended hours remain. Apply a 10 % non-productive allowance and you get 1,485 productive hours. That is 71 % of the 2,080 figure. Costing at 2,080 understates the true hourly cost by nearly a third, which is enough to turn a profitable quote into a loss-making one.

Be deliberate about the non-productive percentage. If you are costing a support role whose entire job is internal meetings and administration, that work is the output and the percentage should be small. If you are costing a billable engineer, the percentage is the share of the week that no customer will ever pay for, and it is usually larger than managers expect.

Setting a charge-out rate from loaded cost

Once you have a fully-loaded cost and a realistic productive-hours figure, the cost per productive hour falls out, and the charge-out rate follows from the margin you want on the sale:

Note the division. A 40 % target margin means 40 % of the price, not a 40 % mark-up on cost. Continuing the example, 67,500 over 1,485 productive hours is 45.45 per hour; at a 40 % margin the charge-out rate is 45.45 ÷ 0.60 = 75.76 per hour. Marking cost up by 40 % instead would give 63.64 and a realised margin of only 28.6 % — a common and expensive arithmetic slip.

This rate covers the person and the things attached to the person. It does not cover overheads that are not headcount-driven — premises beyond the desk, management, sales, finance, insurance for the business itself — so treat the result as a floor for the direct labour element and load your own overhead recovery on top before quoting.

Employee versus contractor

The comparison in this tool puts the fully-loaded annual cost of an employee next to a contractor day rate multiplied by the days you would actually engage them, and reports the difference and the break-even day rate — the rate at which the contractor costs exactly what the employee costs. By default the number of contractor days matches the employee's productive days, so you are comparing the same quantity of work rather than a full-time salary against a handful of days.

A headline day rate that looks expensive is often not, once you notice that you do not pay a contractor for leave, public holidays, sick days, pension, employer contributions, equipment or recruitment. Equally, a contractor who is engaged all year at a premium rate can cost far more than an employee doing the same work. The arithmetic is genuinely useful. What the arithmetic cannot do is decide the worker's status.

The tests are country-specific, but the underlying themes are strikingly consistent. The ILO's Employment Relationship Recommendation, 2006 (No. 198) states the principle of the primacy of facts — status follows what actually happens, not the label on the paperwork — and lists indicators such as work carried out under the instructions and control of another party, integration into the organisation of the enterprise, work performed personally by the worker, work carried out within specified hours or at a specified workplace, work of a particular duration and continuity, a requirement to be available, and the provision of tools, materials and periodic payment by the party requesting the work. The United States Internal Revenue Service groups the same evidence into behavioural control, financial control and the type of relationship, and is explicit that there is no magic number of factors — the whole relationship is weighed. Read across those frameworks and three questions recur:

• Control — who decides what is done, when, where and how?
• Integration — is the person part of the organisation, or a genuinely separate business serving it?
• Financial risk — can the worker profit or lose from how the work is performed, do they supply their own equipment, and can they take on other clients or send a substitute?

If the honest answers point to employment, the cost comparison in this tool tells you what employing properly will cost. That is the right way round.

Hiring decisions this changes

• Quoting and pricing. Any quote built on salary ÷ 2,080 is under-priced twice over — once for the missing on-costs, once for the missing hours.
• Make or buy. Outsourcing and automation cases are usually argued against salary. Argue them against fully-loaded cost per productive hour and the answer often flips.
• Headcount versus overtime. An extra head brings a whole set of fixed costs and only 1,400-1,600 productive hours; overtime brings hours without them. The trade-off is visible only when both are expressed per productive hour.
• Retention. Put a real recruitment cost in and shorten expected tenure — the loaded cost moves immediately. That is the business case for keeping people.
• Benefit design. Extra leave days, training days and a richer pension all show up in the multiplier and the hourly cost, so their real price is on the table during the decision.
• Budgeting. The departmental roll-up and the labour cost per unit of output give you a productivity measure that survives contact with the finance team.

Saving your work

• Save: writes everything to this browser immediately and flashes “Saved ✓” with the time. Nothing is stored outside your own machine.
• Export .json / Import .json: the complete state as a file you can archive, review or move to another computer.
• Export CSV: the role table plus the productive time model, ready for a spreadsheet.
• Print Report: executive tiles, the time model, all three charts, the role table, the departmental split, the contractor comparison and your closing notes — rebuilt from current data every time, including when you print with Ctrl+P. Saving as PDF works too.
• Reset: a two-step button — press once to arm, again to confirm. It erases the roles, the time model, the assumptions, the report header and everything this tool has saved in your browser. Export a project file first if you want a copy.

References

The concepts in this tool were checked against the following sources. No contribution rate from any country is embedded in the tool; the sources below define what belongs in the cost and what the employee/contractor distinction turns on, not how much anything costs. URLs are given as plain text because this file makes no network requests.

1. Eurostat (2025). Glossary: Labour cost — Statistics Explained. European Commission. ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Labour_cost
2. International Labour Organization (1966). Resolution concerning statistics of labour cost, adopted by the Eleventh International Conference of Labour Statisticians. ILO, Geneva. ilostat.ilo.org — Standards and guidelines on labour cost statistics
3. OECD (2025). Hours worked (indicator): average annual hours actually worked per worker — definition and exclusions. Organisation for Economic Co-operation and Development. oecd.org/en/data/indicators/hours-worked.html
4. International Labour Organization (2006). Employment Relationship Recommendation, 2006 (No. 198) — primacy of facts and indicators of an employment relationship. ILO, Geneva. normlex.ilo.org — NORMLEX — Recommendation R198
5. International Labour Organization (1970). Holidays with Pay Convention (Revised), 1970 (No. 132) — minimum annual paid holiday of not less than three working weeks. ILO, Geneva. ilo.org/resource/c132-holidays-pay-convention-revised-1970
6. Internal Revenue Service (2025). Independent contractor (self-employed) or employee? — common-law rules: behavioural control, financial control and type of relationship; consequences of misclassification. United States Department of the Treasury. irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

Disclaimer

This tool performs arithmetic on the figures you supply. It is not legal, tax, accounting or employment advice, and it is not a substitute for a qualified professional who knows the rules where you employ people. Employer contribution rates, pension and superannuation obligations, mandatory insurance, statutory leave entitlements, public holidays and the legal tests that separate an employee from an independent contractor all vary by country, by sector and sometimes by region, and they change. Every percentage in this tool defaults to zero precisely so that nothing is quietly assumed on your behalf.

Nothing here should be read as guidance on how to classify a worker. If you are weighing employment against a contract for services, get advice on the status first and use the costs second. Misclassification is enforced in most countries and the liability normally falls on the engaging business.