IT Contract Rate Calculator
Determine your required daily and hourly rate based on a target permanent salary and overheads.
How to Calculate Your IT Contractor Rate
Switching from a permanent IT role to contracting can be lucrative, but many developers and project managers fail to account for the "hidden costs" of self-employment. A simple conversion of salary-to-hours doesn't cover the lack of paid leave, pension contributions, or business insurance.
The "Hidden" Costs of IT Contracting
When you are a permanent employee, your salary is only part of what you cost your employer. To find your "break-even" contract rate, you must consider:
- Paid Time Off: You won't get paid for holidays or sick days. Typically, there are 260 weekdays in a year. Once you subtract 25 days of vacation, 8 public holidays, and 5 sick days, you are down to ~222 billable days.
- Employer Contributions: In many regions, employers pay into your retirement fund (Pension or 401k) and pay payroll taxes that you must now cover yourself.
- Business Overheads: As a contractor, you pay for your own laptop, software licenses, professional indemnity insurance, and accounting fees.
- The "Bench" Risk: You should include a margin for periods between contracts when you are not earning.
Example Calculation
If your current salary is $100,000 with a 10% bonus and 5% pension, your true value is $115,000. If you add $5,000 for health insurance, you are at $120,000. To cover business risks and overheads, you should aim for at least 20% more in gross revenue ($144,000).
Dividing $144,000 by 230 billable days results in a daily rate of approximately $626, or an hourly rate of $78.26.
Benchmarking Your Rate
While the calculator gives you a mathematical baseline, you must also check the current market. Specialized skills like Cybersecurity, Cloud Architecture (AWS/Azure), or niche DevOps tooling often command a premium above the standard calculated rate.