Freelance Rate Calculator
$
$
60%
48 wk
40 h
25%
Required Hourly Rate$104.17
Day Rate (8 hrs)$833.33
Billable Hours per Year1,152
Gross Income Needed$120,000.00
Freelancers and contractors cannot simply convert a salary to an hourly figure, because only part of the week is billable and they shoulder their own taxes and overhead. This calculator works backwards from the take-home income you want, adds business expenses, grosses the total up for tax, and divides by the hours you can actually bill to reveal the rate you must quote.
Formula
rate = ((salary + expenses) / (1 − tax)) / (weeks × hoursPerWeek × billable%)
- salary
- Target take-home annual income
- expenses
- Annual business overhead
- tax
- Effective tax + overhead rate as a decimal
- billable%
- Share of working hours that are billable
How it works
- Enter your target salary, yearly business expenses, the percentage of working hours that are billable, weeks worked per year, hours per week, and an effective tax-and-overhead rate.
- Billable hours = weeks × hours per week × billable percent. The salary plus expenses is grossed up by dividing by (1 − tax rate) to cover self-employment taxes.
- The required rate = grossed-up income ÷ billable hours, and the day rate is that hourly figure times eight.
Worked example
A contractor wants $80,000, has $10,000 of expenses, bills 60% of a 40-hour week over 48 weeks, and faces a 25% tax rate.
- Billable hours = 48 × 40 × 0.60 = 1,152.
- Grossed-up income = (80,000 + 10,000) / (1 − 0.25) = $120,000.
- Hourly rate = 120,000 / 1,152 = $104.17.
They must charge about $104.17 per hour (roughly an $833 day rate).
Frequently asked questions
- Why is my freelance rate so much higher than my old salary divided by 2,080?
- Employees bill close to full time and get employer-paid taxes and benefits. Freelancers lose unbillable hours to sales and admin and pay their own taxes, so the rate must be marked up substantially.
- What is a realistic billable utilization?
- Many independents bill 50% to 70% of their working hours; the rest goes to marketing, invoicing, and learning. A lower utilization raises the rate you need to charge.
- Should the tax rate include self-employment tax?
- Yes. Use a combined effective rate that covers income tax plus self-employment or payroll taxes you owe as a contractor, since the calculator grosses the income up by that amount.