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W-2 vs 1099 Cost Calculator (US)

Compare the real employer cost of an employee against a contractor at the same headline rate.

Your numbers

Health and retirement, per BLS ECEC March 2026
Employee vs contractor gap
 
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Is a 1099 contractor cheaper than a W-2 employee?

On direct cost, yes. The employer pays no FICA, no unemployment tax and no benefits on a contractor, which typically makes an employee 20 to 28% more expensive at the same headline rate. Classification is a legal test, though, not a cost decision.

Where Compono fits

The cost gap is the easy part of this decision. The harder question is which roles carry your culture and capability, and those are the ones you want on your payroll and growing. Compono helps you see which roles are core and which genuinely suit a flexible model, so the mix is a choice you can defend rather than a budget reflex.

See how it works

How it's calculated

For a W-2 employee the model adds employer FICA at 7.65% (Social Security 6.2% up to the $184,500 wage base, Medicare 1.45% uncapped), FUTA at an effective 0.6% capped at $42, state unemployment at your editable rate, and benefits at a default 15% of salary from the Bureau of Labor Statistics health and retirement share. For a 1099 contractor the employer pays none of these: the Internal Revenue Service is explicit that you generally do not withhold or pay taxes on payments to independent contractors, so the cost is the contract amount. The gap is real, and so is the risk. Classification is decided by the facts, not by preference. The IRS common-law test weighs behavioural control, financial control and the type of relationship, and it governs the tax outcome this tool calculates. Separately, the Department of Labor's independent contractor test under the Fair Labor Standards Act is being rewritten: the 2024 rule is not being applied and a replacement was proposed in February 2026 but is not final as at July 2026. Several states, notably California with its ABC test, are stricter than both. Getting this wrong is expensive in back taxes and penalties. This is general guidance, not legal advice.

New to the term? Read the plain-English definition of W-2 vs 1099 classification in the HR Glossary.

Common questions

What taxes does an employer pay on a 1099 contractor?

Generally none. The IRS states that you do not have to withhold or pay taxes on payments to independent contractors. The contractor handles their own self-employment tax.

How is worker classification decided?

On the facts. The IRS common-law test weighs behavioural control, financial control and the type of relationship, and governs the tax outcome. The Department of Labor's separate FLSA test is being rewritten as at July 2026, and some states, notably California, apply a stricter ABC test.

What happens if we misclassify someone?

Back taxes, penalties and interest, plus potential wage and hour liability. The saving disappears fast. If the relationship looks like employment on the facts, the label on the invoice will not protect you.

This page is general information, not legal advice. We check figures annually and update them on a best-efforts basis, but employment rules change and we cannot promise everything here is current or complete. Before you act on it, confirm the detail with the US Department of Labor or your own adviser. Last reviewed July 2026.