Total Compensation
Total compensation includes everything an employer spends on a worker: base salary, employer FICA contributions (7.65%), health/dental/vision insurance premiums, retirement plan matching, paid time off, disability and life insurance, and other perks. For most employees, total compensation is 20-40% higher than base salary. This is the number contractors need to match — not just the salary.
Example
An employee with a $120,000 salary might have total compensation of $155,000+ when you add employer FICA ($9,180), health insurance ($12,000), 401(k) match ($4,800), and PTO value ($9,200).
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Business Valuation for Digital Businesses
A small digital business is typically worth its Seller's Discretionary Earnings (SDE) multiplied by an industry-specific multiple. In 2026, multiples range from 1.5x for consulting firms to 6.0x for SaaS businesses, depending on business type, growth, recurring revenue, and owner dependency.
Contractor vs Employee Compensation
Contractors typically need to charge 40-70% more per hour than the equivalent employee hourly rate to achieve comparable take-home pay, because they cover self-employment tax (15.3%), health insurance, retirement, PTO, and business expenses themselves.
Employee Salary Equivalent
An employee salary that matches your contractor income is typically 25-40% lower than your contractor gross, because the employer covers half of FICA taxes, provides benefits, and gives paid time off that you currently fund yourself.