How to use the freelance rate calculator
- Enter the income you want to take home in a year, after tax and business costs.
- Add your yearly business expenses. Include costs an employer would normally cover: equipment, software, insurance, health cover and retirement savings.
- Set an overall tax rate that combines income tax with any self-employment or national insurance contributions.
- Enter your working hours, the share you can bill to clients, and the weeks you will not work.
- Use the hourly rate as your floor. Quote above it to leave a margin for quiet months.
How the hourly rate is calculated
The calculation runs backwards from your goal. First it works out how much revenue you need, then how many hours you can charge for, and divides one by the other:
Expenses are added after the tax step because business costs are usually deducted before profit is taxed.
Worked example
You want to keep $75,000 a year, expect a 25% overall tax rate, and spend $12,000 on the business. Pre-tax profit must be $75,000 ÷ 0.75 = $100,000, so revenue needed is $112,000.00.
You work 40 hours a week but bill 70% of them, and take 4 weeks of vacation plus 2 weeks for holidays and sickness. That leaves 46 weeks × 28 billable hours = 1,288 hours. Your minimum rate is $112,000 ÷ 1,288 = $86.96 an hour, or $695.65 for an eight-hour day.
Why the rate is more than double a salary’s hourly figure
An employee on a $75,000 salary earns about $36.06 for each of 2,080 paid hours a year. The freelance rate above is 2.4 times that, and none of it is profit. The gap comes from three things employees never see: tax and benefits the employer used to pay, business costs, and unpaid time spent finding clients and running the business. New freelancers who simply divide their old salary by 2,080 often end up earning far less than before.
Key features
- Starts from take-home income, so the rate covers tax and costs.
- Separates hours worked from hours billed.
- Hourly, daily and weekly rates, plus yearly revenue and tax set-aside.
- Works in dollars, pounds, euros and other currencies.
Practical use cases
United States. Self-employed people pay self-employment tax of 15.3% on most net earnings, covering both halves of Social Security and Medicare, plus federal and state income tax. Many freelancers set aside 25% to 35% of profit.
United Kingdom. Sole traders pay income tax and Class 4 National Insurance on profits. Contractors quoting a day rate can use the day-rate figure directly, and should check whether IR35 rules apply to the contract.
Canada. Self-employed workers pay both the employee and employer shares of CPP contributions, which raises the effective rate. Set the tax rate a little higher than your income tax bracket alone.