The amount you want to take home after expenses but before taxes.
Software, equipment, insurance, marketing, etc.
Vacation, sick days, and public holidays.
Excluding admin, sales, and networking time.
Estimated percentage to set aside for self-employment taxes.
Calculation Results
Minimum Hourly Rate: $0.00
Total Annual Target Gross:
Total Billable Hours/Year:
How to Determine Your Contractor Hourly Rate
Transitioning from a salaried employee to a contractor requires a fundamental shift in how you view your earnings. You are no longer just an employee; you are a business entity. To maintain your lifestyle and grow your business, you must calculate a "burdened" hourly rate that accounts for overhead, taxes, and non-billable time.
The Calculation Formula
The standard formula for determining your rate is:
Non-Billable Time: Most contractors spend 20-30% of their time on "overhead" tasks like invoicing, marketing, sales calls, and professional development. If you work 40 hours a week, you may only be able to bill for 25.
The Tax Gap: When you are self-employed, you are responsible for both the employer and employee portions of Social Security and Medicare. It is prudent to set aside 25-35% of your income for taxes.
Business Expenses: Unlike employees, you pay for your own laptop, health insurance, office space, and software subscriptions (Adobe Creative Cloud, Zoom, CRM tools).
Profit Margin: A sustainable business should generate more than just a salary. Adding a 10-20% profit margin allows for future reinvestment in your business equipment or training.
Example Calculation
Suppose you want a net income of $75,000. You have $10,000 in annual expenses and want to set aside 25% for taxes. You plan to take 4 weeks off (leaving 48 weeks worked) and bill 25 hours per week.