Independent Contractor Rate Calculator
Determine your ideal hourly and daily rate based on your financial goals and business overhead.
Recommended Hourly Rate:
Recommended Daily Rate (8h):
Target Annual Gross Revenue:
Total Billable Hours Per Year:
How to Determine Your Contract Rate
Transitioning from a salaried employee to an independent contractor requires a fundamental shift in how you value your time. Unlike an employee, a contractor is responsible for their own taxes, health insurance, equipment, and non-billable administrative time.
The Contract Rate Formula
To ensure your business is profitable and sustainable, we use the following calculation logic:
- Step 1: Determine Total Cash Need. Add your desired take-home pay to your annual business overhead (software, rent, hardware).
- Step 2: Adjust for Taxes. Divide your total cash need by (1 – Tax Rate). If your tax rate is 25%, you divide by 0.75. This gives you your Gross Revenue target.
- Step 3: Calculate Billable Capacity. Subtract vacation weeks and holidays from the 52-week year. Multiply the remaining weeks by your realistic billable hours per week (usually 20-30, accounting for admin and sales).
- Step 4: The Final Rate. Divide the Gross Revenue target by your annual billable hours.
Example Calculation
If you want to net $80,000 and have $10,000 in expenses, you need $90,000 post-tax. At a 25% tax rate, your gross revenue must be $120,000. If you work 48 weeks a year at 25 billable hours per week (1,200 hours total), your hourly rate should be $100.00.
Why "Billable Hours" Matter
A common mistake for new contractors is assuming 40 billable hours per week. In reality, marketing, invoicing, and administrative tasks often consume 20-40% of your work week. If you base your rate on a 40-hour billable week but only bill 25, you will experience a significant revenue shortfall.