Contractor vs Employee Cost Calculator
Compare the full cost of an employee — CTC plus employer PF, ESI, gratuity and benefits — against a contractor's fees and GST, and read the misclassification risk that the arithmetic does not settle.
Free · No sign-up · Nothing leaves your browser · Figures reviewed 22 September 2026
Your details
Drives the PF and gratuity lines. Defaults to 40% of CTC.
Insurance, perks, anything not inside the CTC figure.
If you can, GST is not a cost. If you cannot, it is a real 18%.
The employee is cheaper
₹2,37,754
Over 12 months: ₹16,82,246 as an employee against ₹19,20,000 as a contractor.
- Employee · 47%
- Contractor · 53%
As an employee
- CTC
- ₹15,00,000
- Employer PF, EDLI and admin
- ₹23,400
- Employer ESINot covered — above the ₹21,000 ceiling
- ₹0
- Gratuity provision
- ₹28,846
- BenefitsInsurance, perks, anything outside CTC
- ₹30,000
- Equipment and workspace
- ₹1,00,000
- Annual cost
- ₹16,82,246
As a contractor
- Rate
- ₹1,60,000 per month
- Annual fees12 months
- ₹19,20,000
- GSTRecoverable as input credit — not a cost
- ₹0
- Annual cost
- ₹19,20,000
What the arithmetic does not settle
- Cost difference
- ₹2,37,754
- As a share of the employee cost
- 14.1%
- Break-even
- Contractor costs more from month one
Misclassification is the risk that matters. A contractor who works fixed hours under supervision, uses your equipment and has no other clients is an employee in substance whatever the contract says — and the liability for PF, ESI, gratuity and notice comes with arrears and penalties.
Contractors usually cost more per hour and less per year, because you pay only for the time you use and carry no statutory liability. That trade reverses as soon as the engagement becomes full-time and long-running.
TDS applies to contractor payments under the professional-services provisions, at a different rate and mechanism from salary TDS. Budget for the compliance, not just the fee.
The substance test is what an inspector applies, not the label on the contract. Fixed hours, supervision, your equipment, no other clients and integration into the team all point one way.
Classification is a legal question with real exposure. This compares cost only — take advice before restructuring an engagement on the strength of it.
Contractors cost more per hour and often less per year, because you pay only for the time you use and carry no statutory liability. That trade reverses as soon as the engagement becomes full-time and long-running.
Which is also where the risk is. A contractor who works fixed hours under supervision, uses your equipment and has no other clients is an employee in substance whatever the contract says — and the liability for provident fund, ESI, gratuity and notice comes with arrears and penalties.
Frequently asked questions
- Is a contractor cheaper than an employee in India?
- Per hour, almost never — contractor rates price in the absence of benefits and job security. Per year, often, because you pay only for the time you use and carry no provident fund, ESI or gratuity liability. The advantage disappears on a full-time, long-running engagement.
- When does a contractor become an employee in law?
- When the substance of the relationship is employment — fixed hours, supervision and control over how the work is done, your equipment, integration into the team, no other clients. The label on the contract does not settle it, and the liability that follows includes arrears of provident fund and ESI with penalties.
- Do I pay GST on contractor invoices?
- Where the contractor is registered, yes, generally at 18%. If you can claim it as input credit it is not a real cost to you; if you cannot, it is a genuine 18% on top of the fee.
- Does TDS apply to contractor payments?
- Yes, under the professional or contractual services provisions, at a different rate and mechanism from salary TDS. The compliance burden is smaller than payroll's but it is not zero.
About this tool
Built by the ViniOffice team. Figures and rules last reviewed 22 September 2026 against the statutory reference this team maintains. Indian statutory rates are date-effective and change by notification — confirm against the current one before running payroll or filing. Classification is a legal question with real exposure. This compares cost only — take advice before restructuring an engagement on the strength of it.
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