Employee vs self-employed tax
Why changing employment status changes contributions, deductions and risk—not only the rate.
2 min read
Self-employed workers may pay both sides of social insurance, but can also deduct legitimate business costs. Comparing only headline income-tax bands misses the main differences.
Separate revenue from profit
Employees are usually taxed on compensation after limited payroll deductions. A business is generally taxed on profit after allowable expenses. The same invoice value and salary are not equivalent.
Price the missing benefits
Paid leave, equipment, insurance, accounting, pension matching and gaps between projects belong in a contractor rate. Employer payroll savings do not all become worker take-home.
Start with the money available for work
Consider fictional annual client revenue of 90,000 and business expenses of 15,000 in the same currency. The arithmetic leaves 75,000 before personal tax and contributions. It does not establish which expenses are legally deductible or whether a company, partnership or sole trader has the same treatment.
A quoted employee salary of 75,000 may also include paid leave and benefits that client revenue does not. For an illustrative 200 billable days, revenue of 90,000 requires 450 per billable day. If only 180 days are billable, the same revenue target requires 500 per day. This is a business planning calculation, not a tax rate.
Understand the calculator’s limit
The self-employed option here is explicitly illustrative. It increases modelled employee contributions with a simple multiplier; it does not implement a country-specific business tax return, corporate tax, expense eligibility or a complete self-employment system. A precise-looking output must not be treated as a validated contractor quote.
Use the employee model to understand an employment offer. Separately estimate business costs, unpaid time, insurance, equipment and payment risk for contracting, then verify the tax treatment using local rules. The linked IRS reference provides one jurisdiction’s concrete explanation of revenue, expenses and self-employment obligations; it is not a global rulebook.
- Separate client revenue from business profit.
- Allow for holidays, illness and time without billable work.
- Check both taxes and social contributions for the actual legal structure.
- Keep the contractor calculation separate from the employee payslip estimate.
Sources and further reading
These references support the framework and cautions in this guide. Tax outcomes remain jurisdiction- and fact-specific.