W-2 Contract vs 1099 vs Corp-to-Corp
The right multiplier depends on which arrangement you are in, because they differ in who pays the employer half of FICA and who provides benefits.
| Arrangement | Who pays employer FICA | Benefits | Typical multiplier on salary |
|---|---|---|---|
| W-2 employee | Employer | Employer | 1.0× (baseline) |
| W-2 contract (agency) | Agency | Sometimes minimal | 1.2–1.4× |
| 1099 independent | You | You | 1.5–1.8× |
| Corp-to-corp | Your entity | You | 1.6–2.0× |
Bench Time Is the Contractor's Real Cost
Contracts end. The gap between them is unpaid, and it is the single largest difference from employment.
| Utilisation | Paid weeks per year | Rate needed for $120k |
|---|---|---|
| 100% | 52 | $58/hr |
| 90% | 47 | $64/hr |
| 80% | 42 | $72/hr |
| 70% | 36 | $83/hr |
What to Ask Before Quoting
- Is it W-2 or 1099? The answer changes your rate by 30%.
- How long, and is there an extension? A six-month contract with a likely renewal
- Are expenses reimbursed? Travel, equipment and software are yours on 1099 by default.
- What are the payment terms? Net-60 on a $10,000 invoice is a $10,000 loan you are
Corp-to-Corp
Running through an LLC or S-corp adds formation and accounting costs — realistically $1,500–$3,000 a year — and in exchange offers liability separation and, with an S-corp election, a possible payroll-tax saving on distributions above a reasonable salary. It is worth it somewhere north of $100,000 of contract income, and pure overhead below that.
Quoting the Rate You Calculated
The number is the easy part. Three things determine whether you get it:
Quote the project, not the hour. A client comparing $120/hour against $90/hour is comparing rates. A client comparing "$8,000, delivered in three weeks" against another proposal is comparing outcomes — and efficiency gains stay with you instead of shrinking the invoice.
Anchor before they do. Whoever names a number first sets the range. If a client asks for your rate before you understand the scope, give a range tied to project size rather than a single hourly figure.
Charge for scope changes. The most common way a good rate becomes a bad one is uncompensated scope creep. A short change-order clause, invoked once early, prevents most of it.
Payment Terms Are Part of the Rate
| Term | Effect |
|---|---|
| 50% deposit | Removes most of the non-payment risk |
| Net 15 | Standard for small clients |
| Net 60 | A 60-day interest-free loan you are making |
| Late fee 1.5%/month | Enforceable in most jurisdictions if stated up front |
Raising Your Rate
Raise on new clients first — you keep existing revenue while testing whether the market accepts the new number. When you go to existing clients, give 60 days' notice and apply it at a natural project boundary. Losing your lowest-paying client is usually the intended outcome, not a failure.