How to set a freelance rate that covers tax, costs and time off

A sustainable freelance rate is the revenue you need in a year divided by the hours you can actually bill. The revenue has to cover the income you want to keep, tax, business costs and a buffer for quiet months; the billable hours are far fewer than a full-time employee's working hours. Done honestly, the result is usually two to three times the hourly equivalent of a similar salary, which is normal rather than greedy. The freelance rate calculator walks through the steps, and this guide explains each one. It is general information; tax rules depend on where you work.

Why salary divided by hours is wrong

The tempting shortcut is to take a salary and divide by 2,080, the hours in 52 weeks of 40 hours. It undercharges for three reasons. An employer pays for things a freelancer must now fund alone: paid holiday, sick pay, pension contributions, equipment, software and insurance. A freelancer pays tax and social contributions on profit with no employer share. And no freelancer bills 2,080 hours, because a large share of every week goes on finding work, admin, invoicing and learning. The salary converter is still useful for comparing your result with employment, as long as you remember those differences.

Counting billable hours

Start with the weeks you will really work: 52 minus holidays, public holidays and a realistic allowance for illness. Multiply by the hours you work per week. Then apply your billable share, the percentage of those hours you can charge to clients. New freelancers often bill 50 to 60% of their time and established ones with a steady pipeline more, but it varies widely by field. Track it rather than guessing: the time tracker logs where your hours go, and the utilization rate calculator turns that into a percentage. How to track your work hours honestly covers the habit.

The revenue you need

Work backwards from the take-home income you want. Gross it up for tax by dividing by 1 minus your overall tax rate, then add business costs, which are paid before tax: software, equipment, insurance, accounting, workspace, training and marketing. Finally add a safety buffer, because income is lumpy and clients pay late. The calculator uses this formula: revenue = take-home ÷ (1 − tax rate) + costs, then multiplied by 1 plus the buffer. The single tax rate is a simplification; real tax is banded and depends on your country, business structure and allowances, so use the self-employed tax calculator or an accountant for a better effective rate.

A worked example

These are the calculator's default inputs:

• Take-home target $60,000 a year, business costs $6,000, tax and contributions 25%, a 10% buffer.
• Four weeks of holiday and two of sickness leave 46 working weeks; at 40 hours that is 1,840 hours.
• At a 60% billable share, 1,104 hours can be billed.
• Revenue needed: $60,000 ÷ 0.75 + $6,000 = $86,000, plus 10% = $94,600, about $7,883 a month.
• Hourly rate: $94,600 ÷ 1,104 ≈ $85.69; an eight-hour day rate of about $686.

Anything below that hourly rate means you are subsidising your clients. Notice how much the billable share matters: at 75% billable the same revenue needs about $68.55 an hour.

Checking it against the market

The calculator gives you a floor, not a price. What clients will pay depends on your field, experience, location, niche and how directly your work affects their revenue. Look at rates published by professional bodies, freelance platforms and peers, and ask other freelancers. If the market rate is well below your floor, the honest options are to cut costs, raise your billable share, specialise towards better-paid work, or accept lower take-home pay; charging less than the floor and hoping volume fixes it rarely works.

Day rates, projects and raising rates

Many freelancers quote day rates or fixed project prices rather than hourly ones. A project price should start from your estimate of hours multiplied by your rate, plus a margin for scope creep; the quotation generator sets that out for the client, and the invoice generator bills it, with How to write an invoice that gets paid covering what an invoice needs. Review your rate at least once a year and raise it for new clients first. Rates that never rise fall behind inflation and your own growing experience.