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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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.