Freelance hourly rate calculator

Hourly rate, wage or take-home pay

The same calculation answers three questions people ask differently. Start from an hourly rate and it works as a freelance wage calculator, turning the rate into what a year really pays. Start from "A salary I want" and it works as a pay calculator in reverse, giving the rate that delivers that salary once unbilled time, expenses, benefits and both halves of payroll tax are counted. Either way it adds the costs an employee never sees, so the number you quote covers them. To see how many of your hours you can actually sell, the billable hours calculator works that out on its own.

How do you convert an hourly rate to a salary?

Multiply the hourly rate by the hours you work in a week, then by the weeks you work in a year. The quick version uses 2,080 hours, which is 40 hours over 52 weeks, so $50 an hour looks like $104,000 a year.

That figure is only true for someone paid for every hour of every week. If you take three weeks off, it is $98,000. If a third of your time goes on work nobody pays for, it is closer to $65,000. The calculator above asks for both, because the gap between them is where the disappointment lives.

The freelance rate formula

The calculator above runs the same freelance rate formula in both directions. Starting from an hourly rate, it multiplies that rate by your billable hours for the year, then subtracts expenses, the benefits you now buy yourself, and self-employment tax on what is left after expenses, to show what the year actually leaves you. Starting from a salary you want, it works backwards: add your benefits to the salary, gross that total up for self-employment tax, add expenses, then add the profit margin you set, and divide by your billable hours. Either way, the same two costs are what catch people out: the hours that never make it onto an invoice, and the tax an employer used to split with you. The same buildup works whether you invoice as a sole freelancer or price work through a small business, since the costs behind the rate do not change with the letterhead.

Worked example: pricing to match a $75,000 salary

Take a freelance designer who wants their freelance income to match a $75,000 salary with benefits, working 45 weeks a year at 30 billable hours a week, 1,350 billable hours in total. They budget $6,000 a year in business expenses (software, insurance, a laptop replacement) and put a value of $8,000 a year on the health cover and paid leave a salaried job would have included. At the standard 15.3% self-employment tax and a 10% profit margin on top, the freelance rate formula above works out to about $84.74 an hour, not the $36.06 an hour that $75,000 divided by 2,080 gives.

The gap is almost entirely the three things a payslip hides: 1,350 billable hours instead of 2,080 worked hours, both halves of payroll tax instead of half, and benefits that used to be automatic. There is no single "good" rate above that figure; it is a floor, the point below which the work is a pay cut however busy it looks. What sits above it is set by the market, not the arithmetic, and it is worth revisiting once a year rather than fixed once and defended forever.

Why a contract rate is not a salary divided by 2,080

An employer pays for more than the hours on your timesheet. When you invoice instead, those costs move to you, and they are larger than most people expect.

• Both halves of payroll tax. An employee pays 7.65 percent and the employer pays the same again quietly. Self-employed, you pay 15.3 percent, though half of it is deductible.
• Unpaid time. Vacation, illness and the gaps between contracts are all unbilled, and they are the single biggest adjustment.
• Unbillable work. Quoting, admin, invoicing and chasing payment can take a third of the week and nobody pays for any of it.
• Benefits. Health cover, pension contributions and equipment were part of the package and are now line items on your own accounts.

Added together they push the rate well above the naive hourly equivalent. With the calculator's default figures, an $80,000 salary is $38.46 an hour divided by 2,080, but $88.01 an hour once 70 percent billable time, $12,000 of expenses and benefits, self-employment tax and a 10 percent profit are counted. Put your own figures in to see your gap.

Setting a rate you can defend

Work backwards from the year rather than forwards from an hour. Decide what you need to earn, add the costs of earning it, divide by the hours you will genuinely bill, and you have a floor. The market decides how far above that floor you can sit, but nothing sensible happens below it.

• Quote a price for the job where the scope is clear, and a rate where it is not.
• Raise on new quotes first, then existing clients with notice.
• Charge for the first hour of a small job the same way you charge for the first hour of a large one: the setup cost is identical.
• If a client compares your rate with a salary, show them the arithmetic on this page rather than defending the number.

Once the rate is set, the quote generator puts it in writing and the invoice generator bills it with terms attached.

Hourly to annual salary: the quick conversions

On a standard 2,080 hour year, which is 40 hours a week for 52 weeks with no unpaid time off.

Going the other way, salary to hourly, divide the annual salary by 2,080: $60,000 is $28.85 an hour and $80,000 is $38.46. Those are gross figures, before tax and before any of the costs on this page.

W2, 1099 and corp to corp

The same work pays differently depending on how you are engaged, and the headline rate is not comparable across the three.

• W2 employee: the employer pays half your payroll tax, and usually benefits, paid leave and equipment. The rate looks lowest and often is not.
• 1099 contractor: you invoice, you pay both halves of payroll tax as self-employment tax, and you fund your own time off. Expect to need considerably more than the W2 hourly equivalent.
• Corp to corp: you contract through your own company. More admin and more scope for deductions, and usually the highest headline rate of the three.

The calculator above works in take-home terms, so it compares them honestly rather than by headline rate.

When and how to raise your rates

A rate set two years ago is a pay cut, because your costs moved and it did not.

• Set a minimum rate below which you decline work, and hold it.
• Raise on new quotes first, then existing clients with a month of notice.
• Change something visible at the same time: clearer quotes, firmer scheduling, a written guarantee. Clients accept increases attached to something.
• If nobody has questioned your price in a year, it is too low.

Hourly, day rate, or a price for the job