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Contract Rate vs Salary Calculator
Thinking about going freelance, or weighing a contract against a job offer? This compares the two properly. It counts the benefits an employer pays for, the time a freelancer cannot bill, and the costs of running your own business.
How salary and freelance rate really compare
Dividing a salary by 2,080 working hours gives a number that looks like an hourly rate, but it is not the rate a freelancer needs to charge. Three things sit between the two figures.
Benefits are part of the pay
An employer pays more than the salary. Health cover, retirement contributions, paid holiday, sick pay, and insurance typically add 15 to 30 percent on top. When you go freelance, you buy all of that yourself, so the comparison has to start from the employer's full cost, not the salary line.
Not every hour can be billed
An employee is paid for the whole week, including meetings, admin, and slow afternoons. A freelancer is paid only for hours a client agrees to. Selling, quoting, invoicing, learning, and chasing payments come out of the freelancer's own time. Most full-time independents bill 20 to 30 hours a week, and that gap is the largest reason the rate has to be higher.
Running a business costs money
Software, a laptop, professional insurance, an accountant, payment fees, and a workspace all come out of the rate. They are small individually and add up to thousands a year.
How the calculation works
- From salary to rate: multiply the salary by one plus the benefits percentage, add annual business costs, then divide by billable hours in a year (billable hours per week times working weeks).
- From rate to salary: multiply the rate by billable hours in a year, subtract business costs, then divide by one plus the benefits percentage.
Both directions leave income tax out. Employment and self-employment taxes differ by country, and in some places the self-employed pay noticeably more in contributions. The tax set-aside calculator handles that part separately.
Using the result
If the freelance rate the calculator produces looks high, that is the point. It is what parity actually costs. You may still choose to charge less for other reasons, such as flexibility or a client you want to keep, but you will be doing it knowingly. Set your own number with the rate calculator, then turn it into fixed quotes with the quote builder.
Going independent means arranging your own insurance and retirement saving. See our recommended options for freelancers.
Frequently asked questions
Why is the freelance rate so much higher than the salary divided by hours?
An employee's salary is only part of what they cost. The employer also pays for benefits, paid leave, equipment, and the hours between tasks. A freelancer covers all of that from the rate, and can only bill the hours a client agrees to pay for, so the rate has to be higher to end up in the same place.
Is the 1.5 to 2 times rule of thumb right?
It is a fair starting point for many people, but it hides the assumptions. This calculator shows the actual inputs, so you can see whether your own benefits value, billable hours, and costs land you nearer 1.5 or nearer 2.5.
Does this include tax?
No. Both sides are compared before personal income tax. Self-employment taxes and contributions vary a lot by country, so use the tax set-aside calculator for that part.