Ensure compensation equity in your workplace by accounting for the hidden imbalances of contract work.
When it comes to compensation in the workplace, base salary is only one piece of the puzzle. Contract workers miss out on many types of compensation that full-time employees are entitled to, including:
1) Additional Monetary Compensation: Company Equity, Performance Bonuses, Retirement Benefits
2) Benefits: Healthcare, Paid Time Off, Sick Leave
3) Job Stability: Severance, Costs from limited contract length
Use this calculator to identify gaps in how you compensate professional services contractors.
table below for contractors and full-time employees in the same role, starting with the hourly wage you are offering for a contractor, and the full time annual salary of a similar full-time position. Also include any additional benefits that you offer full-time employees and, if applicable, any minimums you enforce for agencies that you use to hire contracted employees.
Review the Wage Gap section. Each subsection enumerates a specific element of compensation and quantifies the associated pay gap.
to focus on closing existing pay gaps through wage increases and improvements to benefits.
A contractor earning $
% less than a full-time employee with a yearly salary of $
due to hidden differences in compensation.
Note: $40/hour * 40 hours *50 weeks = $80,000.
dollars per hour
dollars per year
% target of annual salary
% target of annual salary
days per year
days per year
dollars per month
paid weeks if laid off
Chance of lay off
Time needed to find new job
Avg. employment length
There are no rows in this table
Professional services contractors are paid an hourly wage, while full-time employees at technology companies tend to earn a yearly salary, an annual or biannual performance bonus, and vested stock (restricted stock options or equity).
We’ve converted the contractor’s hourly wage of $
an hour to an annual salary assuming that the contractor works 40 hours a week for 50 weeks in a year (accounting for federal holidays)
Contractor Annual Salary: $
Full-Time Annual Salary: $
Unlike subcontractors, full-time employees are frequently compensated in equity, which is an incentive for employees to stay at the company as their stock vests. At startups, this takes the form of private stock that is baselined to the company’s most recent valuation. At public companies, this compensation tends to take the form of restricted stock options (RSUs). The equity compensation can vary significantly and often increases with seniority (
). The calculations below assume that equity compensation is valued at
% of the full-time employee’s salary (based on interviews with HR professionals).
Contractor Equity Compensation: $
Full-time Equity Compensation: $
At large technology companies, performance bonuses are a frequent tool to supplement full-time employees’ salaries and incentivize high-quality work. Contractors do not receive such bonuses, which often amount to tens of thousands of dollars. Annual bonuses for full-time employee performance range from 10% to 30% of the worker’s salary (
). The pay gap calculation assumes that the full-time employee contributes at least
% of their salary to to their 401K and that their employer matches with an additional
% of salary.
Contractor Matching Retirement Contributions: $
Full-time Matching Retirement Contributions: $
Total Difference in Monetary Compensation
Contractor Monetary Compensation: $
Full-time Monetary Compensation: $
After factoring in just monetary compensation differences in salaries, and the value of the equity and bonuses that full-time employees receive, the contractor in question makes $
less annually than a full-time employee performing the same function.
Since professional services contractors are hired by external subcontracting agencies, the benefits (such as paid time off, sick leave, and high quality healthcare) offered to full-time employees at technology companies are usually not extended to contractors.
While technology companies have often provided generous paid time off benefits to their employees (including “unlimited” PTO days), contractors must often decide between working and unpaid leave. The average amount of PTO offered to full-time employees is 12 days for new employees (
). The full-time employee’s compensation package that is used in the parity calculation is assumed to have
days of PTO.
Contractor Paid Time Off: $
Full-time Paid Time Off: $
Many subcontracting agencies provide the federally mandated 24 hours (3 days) of sick leave per year. This is often not enough, forcing contractors to decide between their economic livelihood or health. The stakes of this dichotomy between health and economic stability have only been exacerbated by the pandemic. The national average of sick days offered for new employees is 7 days (
), though many technology companies also offer flexible norms around taking paid time off due to illness. The full-time employee’s compensation package that is used in the parity calculation is assumed to have
days of sick leave.
Contractor Sick Leave: $
Full-time Sick Leave: $
Cost of Health Insurance
Although health insurance costs vary significantly by an individual’s needs and a company’s offerings, the difference between coverage for full-time employees and contractors can be stark. Whereas Silicon Valley companies are known for offering best-in-class healthcare benefits, that is usually not the case for contracting agencies (
After factoring in just the differences in benefits provided to full-time and contract workers, the net difference between full-time and contractor nonmonetary benefits is $
Job Stability Compensation
Contractors and full-time employees experience different levels of job stability because of differences in employment protections and the average length of employment.
Economic Value of Job Uncertainty
The economic value of job uncertainty is calculated by incorporating the amount of time lost when a full-time employee or contractor is not working. Silicon Valley tends to have a high variance in turnover rate, and a study on turnover of 15 large Bay Area tech companies showed full-time tenures ranging from 1.8 to 7 years (
). Contract lengths can be much shorter, and companies are incentivized to reduce the contract length for fear of legal repercussions. In turn, since contractors frequently have shorter work periods, they spend more time on the job market and less time earning income (
Full-time employees at technology companies often benefit from worker protections that are legally mandated or considered “best practices” when it comes to involuntary termination. On average, full-time employees are offered 1 to 2 weeks of paid salary for every year worked (
). Contractors, who are more likely to be laid off in the first place, must also accept a fraction of what full-time employees receive in severance. For example, in May 2020, Airbnb laid off full-time employees and contractors in response to the pandemic. Full-time employees were offered 7 weeks of severance while contractors (who made up a majority of the layoffs) were offered 1 week (
To calculate the impact of severance, we make an estimation for the likelihood of being laid off for a given year, and factor in the expected severance. The calculations assume that the likelihood of layoff for a contractor is
% and the likelihood of a layoff for a full-time employee is
%. The pay gap calculations assume the severance for contractors is
weeks for full-time employees.
Full-time Employees: $
Total Difference in Economic Stability
After factoring in the job uncertainty experienced by contractors and the diminished worker protections that are offered to contractors, the monetary difference in job stability between contractors and full-time employees amounts to $
Important Aspects of Contract Work That Are Not Covered
While the calculator aims to cover the main discrepancies between full-time and contractor compensation, there may be other forms of compensation that are unique to each company. For example, Silicon Valley companies are also known for providing perks such as meals, transportation subsidies, personal care reimbursements, and branded personal items.
In addition, there are a significant number of nonmonetary disparities between full-time and contract work that create a meaningful divide between the 2 worker classes. From unequal access to company content and events to weaker legal protections, these differences further the perception of a 2-tier system between full-time and contract workers, despite their working side by side.
Total Wage Gap
Taking into account the differences in monetary, benefits, and job stability compensation, we sum up the total expected compensation below.
Total Contractor Expected Compensation:
Total Full-time Expected Compensation: $
This results in:
Current Wage Gap:
Net Difference in Compensation: $
How can I address the compensation disparity between full-time workers and contractors?