Determine your ideal rate based on desired income, expenses, and taxes.
The amount you want in your pocket after taxes and expenses.
Software, insurance, hardware, office space, and marketing.
Combined self-employment and income tax rate.
Time you won't be working/earning.
Your standard work week length.
% of time spent on client work vs. admin/marketing.
Calculation Results
$0.00 / hour
Total Annual Gross Revenue Needed: $0.00
Total Billable Hours Per Year: 0
Monthly Revenue Target: $0.00
Weekly Billable Target: 0
How to Calculate Hourly Rate for Contract Work
Transitioning from a salaried employee to a contractor or freelancer requires a fundamental shift in how you view your income. You are no longer just an employee; you are a business. This means your hourly rate must cover not only your lifestyle but also your business overhead, healthcare, retirement, and the "unbillable" time spent on administrative tasks and finding new clients.
The Core Formula
To find your billable hourly rate, we use a "bottom-up" approach. We start with what you want to take home and work backward through the costs of doing business.
Rate = (Desired Net Income + Operating Expenses + Taxes) / (Total Working Weeks × Weekly Hours × Efficiency %)
Key Factors to Consider
The Tax Gap: As a contractor, you are responsible for both the employer and employee portions of Social Security and Medicare (often called Self-Employment Tax). Always factor in at least 25-30% for taxes depending on your jurisdiction.
Billable vs. Non-Billable Time: You cannot bill for 40 hours if you spend 10 hours a week on bookkeeping, emails, and sales calls. Most successful contractors maintain a 60% to 80% billable efficiency.
Overhead: This includes professional indemnity insurance, laptop upgrades, high-speed internet, coworking space fees, and specialized software subscriptions like Adobe Creative Cloud or CRM tools.
Paid Time Off (PTO): Unlike a corporate job, if you don't work, you don't get paid. You must price your active hours high enough to cover 2-4 weeks of vacation and potential sick days.
Example Calculation
Imagine a software consultant who wants a $90,000 take-home pay. They have $12,000 in annual expenses and face a 25% tax rate. They want 4 weeks of vacation and work a standard 40-hour week at 75% efficiency.