S-Corp vs LLC tax savings
Compare S-Corp payroll tax savings on owner payouts against LLC taxes. Includes fair salary rules, payroll fees, state taxes, and QBI.
Net annual profit gain
+$24,546
$128,440 billed revenue minus $81,014 loaded pay & $22,880 owner timeExample calculationYes, hiring adds $24,546/yr even after your supervision time
At 65% utilization (1,352 billable hrs/yr at $95/hr), your hire brings in $128,440/yr against $81,014 in wages, payroll taxes, benefits, and onboarding. That leaves +$47,426 in cash profit, or +$24,546 after valuing your 4 hrs/wk of management at $110/hr.
Cash profit before owner time
+$47,426/yr
Before counting $22,880 owner timeTotal loaded worker cost
$81,014/yr
$38.95/hr true loaded cost ($32/hr base)Owner supervision drag
$22,880/yr
208 hrs/yr at $110/hr owner rateBreak-even utilization
52.6% util
41.0% cash break-even before owner timeSide-by-side annual P&L: Turning down work vs hiring
| Annual P&L line item | Turn down overflow | Hire worker |
|---|---|---|
| Annual paid worker hours (40 hrs/wk x 52 wks) | 0 hrs | 2,080 hrs |
| Billable client hours captured (65% utilization) | 0 hrs (turned down) | 1,352 hrs |
| Gross client revenue from overflow work ($95/hr) | $0 | $128,440 |
| Base wages ($32/hr) | $0 | $66,560 |
| Employer payroll taxes & workers comp (11.5%) | $0 | $7,654 |
| Benefits, software seats, tools & recruiting/onboarding | $0 | $6,800 |
| Direct cash profit added (before owner supervision time) | $0 | +$47,426 |
| Owner management & QA opportunity cost (4 hrs/wk at $110/hr) | $0 | -$22,880 |
| True net annual profit gain (after owner time cost) | $0 | +$24,546 |
How billable utilization makes or breaks your first hire
See how annual revenue and profit shift across worker utilization rates from 40% to 85%:
| Billable utilization | Billed hours/yr | Gross revenue added | Cash profit (before owner time) | Net profit (after owner time) |
|---|---|---|---|---|
| 40% utilization | 832 hrs | $79,040 | -$1,974 | -$24,854 |
| 50% utilization | 1,040 hrs | $98,800 | +$17,786 | -$5,094 |
| 60% utilization | 1,248 hrs | $118,560 | +$37,546 | +$14,666 |
| 65% utilization | 1,352 hrs | $128,440 | +$47,426 | +$24,546 |
| 75% utilization | 1,560 hrs | $148,200 | +$67,186 | +$44,306 |
| 85% utilization | 1,768 hrs | $167,960 | +$86,946 | +$64,066 |
How this calculator works
Solo business owners often calculate a first hire on the back of a napkin: "If I pay someone $32/hr and bill clients $95/hr, I make $63/hr on their work." In practice, three realities shrink that margin: you pay a full-time W-2 employee for 2,080 hours a year (including holidays, PTO, slow pipeline weeks, internal meetings, and rework) while billing closer to 60% to 70% of those hours; employer FICA, unemployment taxes, workers comp, and software/equipment add 18% to 25% on top of base wages; and every hour you spend training, dispatching, or fixing their deliverables is an hour you cannot bill yourself.
The Rule of 3x on base hourly wages
Service agencies, accounting firms, and skilled trades benchmarks generally aim to bill clients 2.5x to 3.5x a worker's base hourly wage at 65%+ utilization. Roughly one-third covers wages, one-third covers taxes, overhead, unbilled time, and management, and the final third becomes net business profit.
Frequently asked questions
Why is 65% to 70% considered realistic full-time billable utilization?
Out of 2,080 paid hours in a 40-hour workyear, 10 holidays and 2 weeks of PTO remove 160 hours right away. Adding 1.5 hours per day for internal communication, admin, training, and unbillable revisions leaves roughly 1,300 to 1,450 true client-billable hours per year (63% to 70%).
Should I hire a part-time 1099 contractor before committing to a full-time W-2 employee?
If your overflow demand is seasonal or under 25 billable hours per week, a 1099 subcontractor (where legally permitted) lets you pay a higher hourly rate only when client work is in hand, avoiding unbilled bench time and employer payroll tax overhead.
What if the new hire handles admin or production work that frees me up to sell higher-rate work?
If delegating lower-rate tasks lets you convert your own hours into $110+/hr billable work instead of consuming 4 hours/week of supervision, set the owner weekly management hours closer to 0 (or model the unlocked billable hours directly).
Benchmark sources and dates
Starting assumptions are example benchmarks, not binding quotes. Change any input to match your own bills or offers.
| Assumption / Input | Starting value | Source | Checked |
|---|---|---|---|
| Employer wages, payroll taxes, workers' compensation, and benefits load | $32/hr base wage, 11.5% payroll tax & workers' comp, $4,800/yr benefits & software | U.S. Bureau of Labor Statistics Employer Costs for Employee Compensation | 2026-04-01 |
| Recruiting, onboarding, and first-year training overhead | $2,000 upfront recruiting/onboarding + 4 hrs/wk owner supervision | Society for Human Resource Management (SHRM) Human Capital Benchmarking | 2026-04-01 |
| Small agency and professional services billable utilization and realization | 65% billable utilization at $95/hr ($110/hr owner rate) | U.S. Small Business Administration Office of Advocacy Small Business Profiles | 2026-04-01 |