Independent Contractor Hourly Rate Calculator

Independent Contractor Hourly Rate Calculator

Determine the hourly rate you need to charge to meet your income goals after expenses and taxes.

How much do you want to take home *after* taxes and costs?

Software, equipment, insurance, accounting, marketing, etc.

Include self-employment tax and income tax (often 25-35%).

Time Availability

Percentage of time spent actually doing paid client work vs. admin/marketing tasks (typically 60-80%).

Results:

To hit your target net income of , your required minimum hourly rate is:

$0.00 / hour

Key Figures:

Total Gross Annual Revenue Needed: $

Total Estimated Annual Billable Hours: hours

function calculateHourlyRate() { // 1. Get Input Values var targetNetIncome = parseFloat(document.getElementById('targetNetIncome').value); var annualExpenses = parseFloat(document.getElementById('annualExpenses').value); var taxRatePercent = parseFloat(document.getElementById('taxRatePercent').value); var weeksWorked = parseFloat(document.getElementById('weeksWorked').value); var hoursPerWeek = parseFloat(document.getElementById('hoursPerWeek').value); var billablePercent = parseFloat(document.getElementById('billablePercent').value); var resultDiv = document.getElementById('rateResult'); // 2. Validation if (isNaN(targetNetIncome) || isNaN(annualExpenses) || isNaN(taxRatePercent) || isNaN(weeksWorked) || isNaN(hoursPerWeek) || isNaN(billablePercent) || weeksWorked <= 0 || hoursPerWeek <= 0 || billablePercent = 1) { alert("Tax rate must be less than 100%."); return; } // Calculate the total GROSS income needed to cover net target + expenses // Formula: Gross = (Net + Expenses) / (1 – TaxRate) var totalGrossNeeded = (targetNetIncome + annualExpenses) / (1 – taxDecimal); // Calculate total available working hours per year var totalWorkingHours = weeksWorked * hoursPerWeek; // Calculate actual BILLABLE hours per year based on the ratio percentage var totalBillableHours = totalWorkingHours * (billablePercent / 100); // Ensure totalBillableHours is greater than zero before dividing if (totalBillableHours <= 0) { alert("Your resulting billable hours are zero. Please adjust weeks, hours, or billable percentage."); resultDiv.style.display = 'none'; return; } // Final Calculation: Required Hourly Rate var requiredRate = totalGrossNeeded / totalBillableHours; // 4. Display Results document.getElementById('displayTarget').innerText = targetNetIncome.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('finalHourlyRate').innerText = requiredRate.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('grossNeeded').innerText = totalGrossNeeded.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('totalBillableHours').innerText = Math.round(totalBillableHours).toLocaleString(); resultDiv.style.display = 'block'; }

Understanding Independent Contractor Pricing

Moving from a salaried employee role to working as an independent contractor, freelancer, or consultant requires a complete shift in how you view your income. A common mistake new contractors make is charging an hourly rate based purely on their previous salary divided by 2,080 hours (a standard 40-hour work year). This approach almost always leads to undercharging because it ignores the substantial additional burden placed on contractors.

As an independent contractor, you are a business owner. You are responsible for the employer's share of taxes (self-employment tax), your own benefits (health insurance, retirement contributions), business operating costs, and unpaid time off. This calculator helps you reverse-engineer your hourly rate based on the actual net income you want to achieve.

The "Billable Hours" Trap

One of the most critical variables in this calculator is the "Billable vs. Non-Billable Ratio". If you work 40 hours a week, you likely cannot bill clients for all 40 hours. You spend time on non-revenue-generating tasks such as:

• Marketing and business development
• Accounting, invoicing, and bookkeeping
• Client proposals and administrative communication
• Technical troubleshooting and IT
• Professional development and training

A realistic billable percentage for many freelancers is between 60% and 80%. If you assume you are billable 100% of the time, your calculated rate will be too low to sustain your business.

How the Calculation Works

This tool uses a "bottom-up" approach to determine your rate:

1. Define Net Target: Start with what you want to take home after everything is paid.
2. Add Overheads: Add your estimated annual business expenses.
3. Account for Taxes: The calculator "grosses up" the sum of your net target and expenses to account for the estimated tax percentage, giving you a Total Gross Revenue target.
4. Determine Real Capacity: It calculates your total available working hours (weeks worked × hours per week) and applies your billable ratio to find the actual hours you get paid for.
5. Final Rate: It divides your Total Gross Revenue target by your Actual Billable Hours to give you the minimum hourly rate needed to hit your goal.

Use this result as a baseline. Depending on your industry, experience, and demand, the market rate might allow you to charge significantly more than this minimum calculated figure.