Why a freelance rate is more than a salary divided by hours
An employee's salary is what they take home after the employer has already covered overhead, payroll taxes, equipment, and paid time off. A freelancer has to pay for all of that out of what they bill. So a contractor rate that merely matches an equivalent salary leaves you working for less than the employee earned.
This calculator grosses up the gap. It starts from the take-home pay you want, adds your annual business overhead, then divides by one minus your tax rate so the bill still clears your target after tax. Spreading that required revenue across only the hours you can actually bill gives the hourly rate you need to charge.
Billable hours are the hidden lever
A standard work year is about 2,080 hours, but only a fraction is billable. Time spent winning clients, sending invoices, learning new skills, and taking holidays earns nothing directly, so many freelancers bill only 50 to 60 percent of a full year.
Because the rate is required revenue divided by billable hours, fewer billable hours push the rate up sharply. If your number looks high, it usually reflects realistic billable time rather than greed — and undercounting that time is the fastest way to underprice yourself.
Reading the result
The headline is the hourly rate that funds your goal; the day rate assumes eight billable hours. Required annual revenue is the total you must invoice across the year for the plan to work.
The chart shows how that revenue divides between your take-home pay, your overhead, and the tax set-aside — a reminder that a large share of every invoice is already spoken for before any of it reaches you.
Use it as a floor, then adjust
The output is the minimum rate to hit your target on the assumptions you entered; it is an estimate, not a market price. Real rates also reflect the value you deliver, your experience, demand in your niche, and what clients in your market will pay. Treat this figure as a break-even floor, build a profit margin on top, and review it as overhead, taxes, and capacity change.
Formula
requiredAnnualRevenue = (targetAnnualSalary + annualOverhead) / (1 − taxRate/100); hourly = requiredAnnualRevenue / billableHoursPerYear; dayRate = hourly × 8Frequently asked questions
- Why are billable hours lower than a full work year?
- Time spent on admin, sales, learning and time off is not billable. Many freelancers bill only 50-60% of a standard 2,080-hour year.