PAYE vs Contract Calculator
Compare permanent employment (PAYE) with contracting roles to understand the financial differences, including take-home pay, pension contributions, holidays, and tax implications.
How to use this calculator
Enter your current (or target) PAYE salary on the left and your expected contracting day or hourly rate on the right. The calculator will instantly show your monthly and annual take-home pay for both options — covering income tax, National Insurance, pension contributions, and holiday allowances — so you can see at a glance whether switching to contracting makes financial sense.
What you'll need:
- • Your current or target PAYE salary
- • Employer and employee pension percentages
- • Expected contract day rate or hourly rate
- • Estimated working days per week and holiday weeks
What you'll find out:
- • Monthly and annual take-home for PAYE vs contracting
- • How much more (or less) you'd earn contracting
- • Effective tax rate for each scenario
- • Difference between inside and outside IR35 take-home
Why the comparison matters
Moving from PAYE to contracting isn't just about a higher day rate — your IR35 status, pension arrangements, and working weeks all affect your real take-home pay. This tool gives you a like-for-like comparison so you can negotiate rates confidently and plan your finances accurately.
PAYE Employment
Contracting
Unpaid time off
Understanding PAYE vs Contracting
PAYE Employment
- ✓ Guaranteed salary
- ✓ Employer pension contributions
- ✓ Paid holiday (28 days minimum)
- ✓ Sick pay and other benefits
- ✓ Job security
- ✗ Less flexibility
- ✗ Limited tax optimization
Contracting
- ✓ Higher day rates
- ✓ Tax optimization (outside IR35)
- ✓ Greater flexibility
- ✓ Variety of projects
- ✗ No paid holidays
- ✗ No sick pay
- ✗ Less job security
Key Considerations
Inside IR35 vs Outside IR35
Inside IR35: You're treated like an employee for tax purposes. The end client or agency will typically require you to work through an umbrella company, which deducts PAYE tax, National Insurance, and their fees (typically 4-5%). You receive statutory benefits like holiday pay.
Outside IR35: You operate as a genuine business through your limited company. You can optimize your tax by taking a small salary and the rest as dividends. However, you must account for your own holidays, sick leave, and pension.
Holiday Considerations
PAYE employees and umbrella contractors receive 28 days (5.6 weeks) of paid annual leave. Limited company contractors working outside IR35 must factor unpaid time off into their rates. Typically, contractors account for 46 working weeks per year (52 weeks - 6 weeks for holidays and contingency).
Pension Contributions
PAYE employers must contribute at least 3% to your pension. Umbrella companies also provide employer contributions. Limited company contractors can make tax-efficient pension contributions from their company, but must arrange this themselves.
When to Choose Contracting
- Your skills are in high demand with competitive day rates
- You value flexibility and variety in your work
- You're comfortable with financial uncertainty
- You can work outside IR35 to maximize tax benefits
- The rate difference compensates for lack of benefits
When to Stay PAYE
- You prefer stability and job security
- Benefits like paid holidays and sick pay are important to you
- You want employer pension contributions without managing it yourself
- Available contract rates don't significantly exceed PAYE salaries
- Most contracts in your field are inside IR35