Why is the calculated rate higher than my old employee salary?

Contractors cover costs that employers normally pay — payroll taxes, health insurance, equipment, software, professional development, and unpaid gaps between contracts. A contractor rate typically needs to be 1.5–2× an equivalent employee salary just to break even.

What should I include in overhead costs?

Common overhead items: accountant fees, business insurance (professional liability, general liability), software subscriptions, hardware depreciation, office or co-working space, marketing/website, professional memberships, and a self-employment tax buffer (roughly 15% in the US on top of income tax).

What is a realistic number of billable days?

A 5-day week with 47 working weeks gives 235 days maximum. In practice, plan for 60–75% billable utilisation (140–175 days) once you account for sales, admin, sick days, and gaps between projects. Overestimating billable days is the most common rate-setting mistake.

What profit margin should I use?

A 10–20% margin is common for solo contractors — it acts as a buffer for slow months, late payments, and unexpected costs. Higher margins (20–30%) make sense if you subcontract work or want to grow a reserve fund.

Does this calculator account for taxes?

The calculator does not split out taxes automatically. Include your expected self-employment or corporate tax liability as part of your overhead costs to ensure your rate covers them.

Contractor Rate Calculator

Enter your target income, working days, expenses, and margin to instantly calculate the minimum hourly and daily rate you need to charge.

Your Numbers

Currency symbol

Target annual take-home income

Annual overhead costs (taxes buffer, insurance, software…)

Working weeks per year (after vacation & holidays)

Billable days per week (rest is admin, sales, non-billable)

Billable hours per day

Profit margin: 15%

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Minimum Rates to Charge

Hourly Rate

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per hour

Daily Rate

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per day

Revenue Breakdown

Target take-home income —

Annual overhead —

Profit margin (15%) —

Total annual revenue needed —

Billable Time Summary

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billable days/yr

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billable hours/yr

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utilisation rate

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Summary

Enter your target income, working days, expenses, and margin to instantly calculate the minimum hourly and daily rate you need to charge.

How it works

Enter your desired annual take-home income.
Set the number of working weeks per year and billable days per week.
Add your annual overhead costs (software, insurance, equipment, taxes buffer).
Set a profit margin percentage to build a buffer above break-even.
The calculator derives total revenue needed, then divides by billable days and hours.
Adjust any input and rates update instantly.

Use cases

Set a rate before starting a new freelance contract.
Check whether an offered day rate covers your actual costs.
Plan how many billable days you need to hit an income goal.
Compare hourly vs. daily billing to see which model pays better.
Account for vacation, sick days, and non-billable admin time.
Build a rate that includes self-employment taxes and benefits.
Justify a rate increase to a long-term client with transparent numbers.
Model different overhead scenarios before buying new equipment.

Frequently Asked Questions

Last updated: 2026-09-19 · Reviewed by Nham Vu