Reviewed by David Chen, CFA • Financial Planning Expert
Transitioning from a full-time role to contracting requires a precise understanding of your “true” value. Use this salary to contract rate calculator to factor in holidays, sick leave, and business overheads to find your ideal hourly or daily rate.
Salary to Contract Rate Calculator
Salary to Contract Rate Calculator Formula
Contract Rate = [Annual Salary × (1 + Overhead %)] ÷ Billable Hours
Source: Payscale Hourly Rate Guide, Glassdoor Contractor Negotiation.
Variables Explained
- Annual Salary: The gross yearly pay you aim to match or exceed.
- Working Days: The standard number of days you plan to work each week.
- Vacation Days: Includes public holidays, sick leave, and personal time off.
- Overhead Markup: Additional costs for self-employment tax, health insurance, and admin.
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What is Salary to Contract Rate Calculator?
A salary to contract rate calculator is a financial tool used by professionals to convert a traditional annual employment salary into an equivalent hourly or daily rate for contract work. Unlike full-time employment, contractors must cover their own benefits, taxes, and equipment.
This calculator ensures that you don’t underestimate your value by factoring in non-billable time and the additional financial burden of being self-employed.
How to Calculate Salary to Contract Rate (Example)
- Determine your target salary (e.g., $100,000).
- Add overhead costs (e.g., 30% for taxes/insurance = $30,000). Total: $130,000.
- Calculate billable days: 260 potential days – 25 vacation/holidays = 235 days.
- Calculate billable hours: 235 days × 8 hours = 1,880 hours.
- Divide total target by hours: $130,000 ÷ 1,880 = $69.15/hour.
Frequently Asked Questions (FAQ)
Why is my contract rate so much higher than my salary? Because you must pay for your own health insurance, retirement contributions, and employer-side taxes.
What is a standard overhead markup? Most experts recommend a markup between 25% and 50% depending on your industry and location.
Should I charge by the hour or by the day? Technical roles often charge hourly, while executive consultants typically prefer daily rates.
Do I include public holidays in vacation days? Yes, since you won’t be paid for those days as a contractor, they must be subtracted from your billable time.