Contractor Rate Calculator
Find the hourly rate you need to charge as a freelancer or independent contractor to match a target income — accounting for self-employment tax, lost benefits, and unbillable hours.
Why a contractor rate isn't just "salary ÷ hours"
The single biggest mistake new freelancers make is taking their old salary, dividing by 2,080 hours (40 hours × 52 weeks), and using that as their hourly rate. This badly undercharges, because a salaried position includes several things a contractor has to fund personally: the employer's half of Social Security and Medicare tax, health insurance contributions, retirement matching, paid vacation and sick leave, and the simple fact that a salaried employee gets paid for every hour of the work week — not just the hours that happen to be billable to a specific client.
This calculator builds your rate up from the ground rather than down from a salary, starting with what you actually want to earn and working backward through the real costs of being self-employed.
Understanding each input
- Target annual income — what you want to take home, similar to comparing against a salaried offer or your previous take-home pay.
- Lost benefits value — estimate what your previous (or a comparable) employer-provided health insurance and retirement match would cost you to replace on your own; this is often underestimated significantly.
- Business overhead — covers software subscriptions, business insurance, a portion of self-employment tax, and the time spent on invoicing and admin that isn't separately billed.
- Unpaid weeks off — vacation, sick days, and holidays you won't be paid for unless you build them into your rate ahead of time.
- Billable hours per week — most full-time freelancers can only bill 25–32 hours/week even working a 40+ hour week, once you account for marketing, proposals, and administrative tasks.
Worked example
A freelancer targeting $80,000/year take-home, with $12,000 in lost benefits, 15% overhead, 4 unpaid weeks, and 30 billable hours/week:
| Item | Amount |
|---|---|
| Target income | $80,000 |
| + Lost benefits | $12,000 |
| Subtotal needed | $92,000 |
| + 15% overhead adjustment | $16,235 |
| Total revenue needed | $108,235 |
| Billable hours/year (48 weeks × 30 hrs) | 1,440 |
| Required hourly rate | ≈ $75/hour |
Frequently asked questions
This is a floor, not a ceiling
The rate this calculator produces represents the minimum you need to charge to hit your target income — it's not necessarily the rate the market will actually pay, nor is it a ceiling on what you could charge. Specialized skills, strong demand, or a strong portfolio can justify charging meaningfully more than this baseline. Treat this number as your floor: the point below which you're effectively earning less than your target, even if the headline hourly number looks comparable to a salaried role on paper.