Contract vs full-time pay: break even

By the Reach team · Updated November 12, 2026

A contract offer beats a full-time offer only when the hourly rate covers the benefits, taxes, unpaid time and risk that a salary hides. Convert both to the same yearly basis before you compare. The headline rate almost never tells you which one pays more.

How do you convert a contract rate to a salary?

Start with the hours. A full-time year is about 2,080 hours, but a salaried employee is paid for holidays and vacation inside that figure. A contractor is paid only for hours worked, so the usable base is smaller.

Here is a worked example. The numbers are illustrative assumptions, so swap in your own.

• Full-time base salary: $100,000.
• Employer 401(k) match: 4 percent, or $4,000.
• Employer share of health insurance: $7,000.
• Employer half of Social Security and Medicare tax: 7.65 percent, or $7,650.
• Paid time off: 25 days, or 200 hours, leaving 1,880 paid working hours.

The total package is about $118,650. Divide by 1,880 hours and the break-even rate is roughly $63 an hour. If you expect four weeks between contracts, usable hours drop to 1,720 and the break-even rises to about $69.

The gap between $48 and $69 is the point. A recruiter quoting "$60 an hour for a $100,000 role" is quoting a rate that looks generous and may leave you behind.

What are the benefits actually worth?

Benefits are easy to undervalue because they never show up on a pay stub. The Bureau of Labor Statistics publishes Employer Costs for Employee Compensation, which breaks employer spending into wages and benefits. In recent releases, benefits make up a substantial minority of total private-sector compensation, often near a third. Treat that as a sanity check on your own math, not a promise about any one employer.

Value each item separately, using what you would pay on your own:

• Health insurance. Price a comparable individual plan on the marketplace, then add the deductible you would face. Employer-sponsored coverage is often cheaper for the same level of protection.
• Retirement match. A match is a guaranteed return on your own contributions. If you would otherwise save in a solo plan, the match is the difference you lose.
• Paid leave and sick days. Count them in hours. Each unpaid day as a contractor costs you a day of rate.
• Equity and bonuses. Value these conservatively. Unvested stock at a private company may be worth nothing.
• Unemployment insurance and workers' compensation. Employees are generally covered. Many contractors are not, and that is a real cost when a contract ends early.

Some contractors also gain things employees lack: the right to bill other clients, deduct business expenses, and set their own schedule. Those have real value, but only if you will use them.

How likely is a contract to become a full-time job?

Nobody publishes a reliable conversion rate that applies to your situation, and you should distrust anyone who quotes one. The BLS tracks how many workers are in temporary and contract arrangements in its contingent and alternative employment arrangements data, but that data does not tell you how often a given arrangement ends in an offer.

Conversion depends on the employer's reason for hiring a contractor. In our experience, three situations look very different:

1. Trial period. The company wants to test fit, has headcount approved, and says so in writing. Conversion is plausible.
2. Project work. The budget is for a defined deliverable. When it ships, the role usually ends.
3. Headcount workaround. The company cannot hire full-time and is using contractors to fill the gap. Conversion depends on a budget decision you cannot see.

Plan as though the contract will end on its stated date. If conversion happens, treat it as a bonus, not as the reason you took the job.

What should you ask before accepting a contract?

Ask these before you sign, and note which answers are vague. A hiring manager who cannot say why the role is a contract has usually not thought it through.

• Why is this role a contract, and is there approved headcount for a full-time version?
• If conversion is possible, what is the process, the timeline, and the salary range? Is there a conversion fee that makes you expensive to hire?
• Is this W-2 through an agency, or 1099 directly with the client? Who pays the employer payroll tax?
• What is the contract length, the renewal pattern, and the notice period if either side ends it early?
• Is the hours guarantee in writing, or is the rate paid only for hours approved?
• Are there any benefits through the agency, such as health coverage or a retirement plan, and what do they cost you?
• When and how will you be paid, and what happens if the client pays the agency late?
• Can you work for other clients at the same time? Are there non-compete or non-solicitation terms?

Also look at how the work is structured. If the company sets your hours, supplies your tools, and directs how you do the job, you may be an employee in practice. The Department of Labor explains the issue on its worker misclassification page. Misclassification can cost you overtime and benefits, so it is worth raising before you start.

When does the contract still win?

Contract work is a reasonable choice in several cases. You may want exposure to a specific stack or industry. You may be between full-time roles and need income fast. You may value flexibility and have a financial cushion for gaps. Or the rate may clearly clear the break-even line, with a cushion.

Full-time usually wins when you have dependents on your health plan, little savings, or a need for a stable income history, for example when applying for a mortgage. Tell yourself honestly which category you are in.

Whichever you choose, compare in writing. Put both offers in one spreadsheet with the same columns: base pay, taxes, insurance, retirement, paid time off, expected gaps. If you want more on weighing offers, the Reach guides cover negotiation and offer review. Tools like Reach can speed up the application side of a search, but automation will not tell you whether a given contract is worth taking. That judgment stays with you.

If the numbers are close, take the offer with the better answers to the questions above. A slightly lower rate with a clear conversion path and a written hours guarantee often beats a higher rate with open questions.