To calculate a freelance hourly rate, work out the revenue your business needs in a year (your take-home pay grossed up for tax, plus benefits, overhead and a profit margin), then divide it by the hours you can realistically bill. Don’t divide by the 2,080 hours of a salaried job. Full-time freelancers typically bill 900 to 1,400 hours a year, so a sustainable rate is usually well over double the hourly equivalent of the same salary.
Why salary ÷ 2,080 hours undercharges you
The most common pricing mistake is to take a salary you’d be happy with and divide it by 2,080, which is 52 weeks × 40 hours. That number assumes three things that aren’t true when you work for yourself:
- Every working hour is paid. Freelancers spend a big share of the week on things no client pays for: sales calls, proposals, invoicing, bookkeeping, learning and chasing late payments.
- Someone else covers the extras. An employer pays part of your payroll taxes, your health insurance or pension contributions, your laptop and your software. As a freelancer, you pay all of it out of your rate.
- Holidays and sick days are paid. If you take six weeks off across holidays, public holidays and illness, those weeks earn nothing.
So your rate has to cover four things: pay, tax, costs and time you can’t bill. Add a profit margin on top so the business can absorb a quiet month.
The freelance rate formula, step by step
This is the formula the Freelancer Rate Calculator uses:
Hourly rate = (take-home pay ÷ (1 − tax rate) + benefits + overhead) ÷ (1 − profit margin) ÷ billable hours per year
- Pick your take-home target. This is what you want to keep after tax. The calculator grosses this figure up by your tax rate, so enter an after-tax amount, not a pre-tax salary.
- Gross it up for tax. Divide by (1 − your effective tax rate). With a 28% rate, every $1 you keep needs $1.39 of profit.
- Add benefits. That means health insurance, retirement or pension contributions and any disability or income-protection cover you buy yourself.
- Add overhead. Include software subscriptions, equipment, a coworking desk, professional insurance, accountant fees, your website and phone.
- Add a profit margin. Divide by (1 − margin). A 10–20% margin builds a cash buffer and pays for slow months.
- Count billable hours honestly. Multiply working weeks × hours per week × the share of those hours you can actually bill.
Worked example: a US freelancer
These are the calculator’s default inputs, run step by step:
| Step | Input | Running total |
|---|---|---|
| Take-home target | $80,000 | $80,000 |
| Gross up for 28% tax | $80,000 ÷ 0.72 | $111,111 |
| Add benefits | + $9,000 | $120,111 |
| Add overhead | + $6,000 | $126,111 |
| Add 15% profit margin | $126,111 ÷ 0.85 | $148,366 |
| Billable hours | 46 weeks × 40 h × 65% | 1,196 hours |
| Hourly rate | $148,366 ÷ 1,196 | $124.05 |
At 8 hours a day, that works out to a day rate of about $992. If this freelancer had divided $80,000 by 2,080 hours, they would have quoted $38.46 an hour. That’s less than a third of the rate their numbers actually need.
The billable share has the biggest effect on the result. With every other input unchanged:
| Share of hours billable | Billable hours / year | Required rate |
|---|---|---|
| 50% | 920 | $161.27 |
| 60% | 1,104 | $134.39 |
| 65% | 1,196 | $124.05 |
| 75% | 1,380 | $107.51 |
If you’re unsure of your billable share, track every working hour for a month with the Timesheet Calculator and divide client hours by total hours. New freelancers usually overestimate it.
A quicker method: work backwards from take-home pay
If you’d rather not itemize benefits, the Hourly Rate Calculator uses a shorter formula. It takes billable hours per week directly and adds a profit buffer on top:
Rate = (take-home ÷ (1 − tax) + expenses) × (1 + buffer) ÷ (billable hours per week × working weeks)
Here’s a UK sole trader who wants to keep £40,000 a year:
- Take-home £40,000 at a 20% effective tax rate: £40,000 ÷ 0.80 = £50,000
- Plus £4,000 of business expenses = £54,000
- Plus a 10% buffer: £54,000 × 1.10 = £59,400 revenue needed
- 25 billable hours a week × 45 working weeks (7 weeks off) = 1,125 hours
- Rate: £59,400 ÷ 1,125 = £52.80 an hour, about £422 for an 8-hour day
The calculator also gives a weekly revenue target (£1,320 here) and a monthly one (£4,950). These targets are easier to track than an annual figure.
The 20% tax figure isn’t a guess. For 2026/27, £50,000 of profit in England, Wales or Northern Ireland pays about £7,486 of income tax and £2,246 of Class 4 National Insurance, which is roughly 19.5% in total. Scottish income tax bands differ.
What tax rate should you use?
Use your effective rate, meaning total tax divided by profit, not your top bracket. The taxes to include differ by country:
| Country | Taxes to build into your rate (2026) | Notes |
|---|---|---|
| US | Self-employment tax of 15.3% on 92.35% of net earnings (the 12.4% Social Security part stops at the $184,500 wage base), plus federal and state income tax | Pay quarterly estimates (Apr 15, Jun 15, Sep 15, Jan 15) |
| UK | Income tax plus Class 4 NI: 6% on profits between £12,570 and £50,270, 2% above | Paid through Self Assessment, often with payments on account |
| Canada | Federal and provincial income tax, plus both halves of CPP (11.9% on earnings between $3,500 and the yearly maximum, with CPP2 above that) | Quebec uses QPP instead of CPP |
| Australia | Income tax plus the 2% Medicare levy | Sole traders don’t have to pay themselves super, but budget for retirement anyway |
The US 1099 Tax Estimator and the UK Self-Employment Tax Estimator turn a profit figure into an estimated tax bill. Divide that bill by your profit to get the effective rate to enter. For example, $100,000 of profit for a single US filer in a state with a 4.5% income tax comes out at roughly 27% all-in on 2026 figures. Rates and thresholds change every tax year, so check the IRS, GOV.UK, Canada.ca or the ATO before relying on them.
Sales taxes are separate. VAT, GST and HST are charged on top of your rate once you’re registered, and you pass them on to the tax authority, so leave them out of this calculation.
Converting a salary to a contractor day rate
In the UK, Canada and Australia, contractors usually quote a day rate, so they compare it with a permanent salary. The Contractor Day Rate Calculator uses:
Day rate = (salary × (1 + benefits value) + annual contractor costs) ÷ billable days
For a £60,000 role with benefits worth 25% (pension, paid holiday, perks), £3,000 of contractor costs and 220 billable days: (£60,000 × 1.25 + £3,000) ÷ 220 = £354.55 a day, or £47.27 an hour for a 7.5-hour day. The tool can also convert the other way. A £450 day rate over 220 days, after the same costs and benefits, is equivalent to a £76,800 permanent salary.
220 billable days starts from about 260 weekdays a year, then subtracts public holidays, your own holidays, sick days and gaps between contracts. A few points by country:
- UK: if a contract falls inside IR35, the client or agency deducts income tax and National Insurance before paying you. That makes an inside-IR35 rate worth noticeably less than the same outside-IR35 rate.
- Australia: contractors paid mainly for their labour can count as employees for super guarantee purposes, and the SG rate is 12% from 1 July 2025. Check whether a quoted rate is “plus super” or “inclusive of super”.
Sanity-check your rate and put it to work
The calculated rate is your floor: the least you can charge and still meet your goals. Before you publish it, check it against what clients pay:
- Look at rates on job boards, agency listings and professional association surveys in your field and region.
- If your floor is above the market, cut overhead, raise your billable share or specialize in a niche where clients pay more. Don’t just accept the lower rate.
- If your floor is well below the market, price at the market rate. The difference is profit.
- For fixed-scope work, estimate the hours, multiply by your rate and add 15–25% for revisions and unknowns. Then quote a project price instead of an hourly one.
Once you have a number, put it in a written estimate with the Quotation Generator, then bill the work with the Invoice Generator. Both produce a PDF in your browser, and your business details are saved only on your device. Review your rate at least once a year, and again whenever your costs or tax position change.
FAQ
How much should a beginner freelancer charge per hour?
Run the same formula with your real costs and a cautious billable share (50–60%). Use the result as your minimum even while you build a portfolio. It’s easier to give a one-off discount than to raise a rate later.
Should I charge hourly or per project?
Hourly suits open-ended work and ongoing support. Project pricing rewards you for working efficiently and is easier for clients to approve. Many freelancers calculate an hourly rate and use it to price projects.
How many billable hours should a freelancer plan for?
A realistic planning range is 20–30 billable hours a week, or about 900–1,400 hours a year over 45–47 working weeks. Track your own time for a month to replace the estimate with your real figure.
How do I convert my hourly rate to a day rate?
Multiply by the hours in your working day. That’s 8 hours in most US contracts and often 7.5 in the UK. At $124.05 an hour, an 8-hour day is $992.40.
Do I include VAT, GST or sales tax in my rate?
No. Set your rate before tax, then add VAT, GST/HST or US sales tax on the invoice if you’re registered or the service is taxable where you work.
How often should I raise my freelance rates?
Review your rates every year, and whenever your costs, tax or demand change. Give existing clients written notice before a new rate starts, usually 30–60 days.