What this calculator does
A freelance rate is not a salary divided by 2,080. Working back from $70,000 of take-home at a 30 per cent tax rate needs $100,000 of profit, plus $8,000 of business costs, so $108,000 of revenue. Spread across 46 working weeks at 40 hours with 60 per cent of that time billable, which is 1,104 billable hours, the rate is $97.83 an hour.
The number that surprises people is the one underneath: across every hour actually worked, billable or not, that same $108,000 is $58.70 an hour. Both figures are true and they serve different purposes. The first is what goes on the invoice, and the second is what the year feels like. A rate quoted without a billable share behind it is usually the second figure being mistaken for the first.
The formula
Business costs are deductible, so tax falls on profit rather than revenue: revenue = target take-home ÷ (1 − tax rate) + business costs. Billable hours are weeks × hours a week × billable share, and the rate is one divided by the other. The weeks field is where holidays, sick days and quiet months belong, and the billable share is where admin, sales, invoicing and the work you do not get paid for go.
| Term | Meaning |
|---|---|
| Take-home | What reaches your account after tax and contributions. The figure to start from. |
| Billable share | Percentage of working hours a client actually pays for. Sixty per cent is a common reality. |
| Business costs | Software, insurance, equipment, accounting, workspace. Deductible, so they sit outside the tax grossing-up. |
| Effective rate | Revenue divided by every hour worked, billable or not. |
The inputs explained
| Field | What to enter |
|---|---|
| Take-home you want ($/year) | What you want to take home for the year after tax, not the headline figure you want to quote. |
| Tax and contributions (% of profit) | Your combined income tax and compulsory contributions as a share of profit. Ask an accountant for your bracket rather than guessing. |
| Business costs ($/year) | Annual business costs: software, insurance, accounting, equipment, workspace, professional fees. |
| Weeks worked a year | Weeks you will actually work. Forty-six leaves six for holidays, illness and dead time. |
| Hours available a week | Hours available for work in a working week, before splitting them into billable and not. |
| Share of hours that are billable (%) | Share of those hours a client pays for. Track it for a month before trusting a guess. |
| Hours in a billing day | Hours in a billing day, used only to produce the day rate. |
When to use it
Setting a rate for the first time
Work backwards from the take-home you need, not forwards from what others charge. The result is a floor; what the market pays is a separate question.
Checking whether a retainer is worth it
A retainer that fills otherwise unbillable time can be worth less per hour and still pay better, because it raises the billable share.
Comparing against a salary offer
Compare the take-home figures, not the rates. A salary includes leave, sick pay and employer contributions that the freelance side has to fund out of the same revenue.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
What does unbillable time cost you?
Only the share of hours that are billable changes.
| Billable share | Hourly rate to charge | Billable hours a year | Rate across every hour you work |
|---|---|---|---|
| 40% | $146.74 | 736 | $58.70 |
| 50% | $117.39 | 920 | $58.70 |
| 60% | $97.83 | 1,104 | $58.70 |
| 75% | $78.26 | 1,380 | $58.70 |
| 90% | $65.22 | 1,656 | $58.70 |
What rate does a given take-home need?
Only the take-home target changes.
| Take-home wanted | Hourly rate to charge | Revenue you need | Day rate |
|---|---|---|---|
| $40,000 | $59.01 | $65,142.86 | $472.05 |
| $55,000 | $78.42 | $86,571.43 | $627.33 |
| $70,000 | $97.83 | $108,000.00 | $782.61 |
| $100,000 | $136.65 | $150,857.14 | $1,093.17 |
| $150,000 | $201.35 | $222,285.71 | $1,610.77 |
Questions
How is this different from the salary converter?
The salary converter moves a known pay figure between hourly, weekly and annual. This works backwards from what you want to keep, through unbillable time, business costs and tax, to the rate you have to charge to get there.
What billable share is realistic?
Sixty per cent is a common figure for established freelancers and a lot of people start nearer forty. Track it for a month before trusting an estimate, because sales, admin and unpaid revisions add up faster than anyone expects.
Where do holidays and sick pay go?
Into the weeks field. Forty-six weeks funds six weeks off; if you work fifty, the rate you need drops and your year has no slack in it. Dropping from 48 weeks to 44 raises the required rate by about nine per cent.
Why are business costs outside the tax calculation?
Because they are generally deductible, so tax falls on revenue less costs. That is why the formula grosses up the take-home first and adds costs afterwards rather than taxing the whole revenue figure.
Is this the rate I should charge?
It is the rate you need, which is a floor rather than a price. What a client will pay depends on the market and the value of the work, and the two numbers are related only loosely. Tax treatment also varies, so use an accountant for your actual rate.
For moving between pay periods there is the salary and hourly rate converter. Taxable equivalent yield handles another case where tax has to come out before two figures can be compared.