How to work out a freelance hourly rate from a salary
· 6 min read
To turn a salary into a freelance hourly rate, add what your employer paid on top of the salary, add the equipment, software and running costs you now pay yourself, and divide that total by the hours you will actually bill in a year. The divisor is where most people go wrong: it is not the hours in a working year, it is the share of them a client pays for. Two weeks of recording your real working day turns that divisor from a guess into a measurement.
Why dividing by 2,080 gives the wrong answer
The tempting calculation takes the salary and divides it by 40 hours times 52 weeks, which is 2,080 hours. A salary of 60,000 comes out at about 29 an hour, which is an easy number to say out loud on a first freelance call.
It is wrong in three ways, and all three push the rate up. The salary was never the whole cost of employing you. The 2,080 hours include holidays and sick days your employer paid for and no client will. And it assumes every working hour is sold. As an employee, the hour you spent in a planning meeting was paid. As a freelancer, only the hours on an invoice are paid; the proposal, the bookkeeping and the week between projects are not.
The steps below build the rate the other way, with one worked example running through them. The numbers are round and chosen to make the arithmetic easy to follow. They are an illustration, not averages or benchmarks, and the currency does not matter. Replace each one with your own.
Step one: the full cost of the job you are replacing
- Start with the salary. In the example, 60,000 a year.
- Add what the employer paid on top of it. This varies a great deal by country: the employer’s share of payroll or social taxes, pension or retirement contributions, health cover where it came with the job, paid parental leave in some places, a bonus. Several of these never appear on a payslip, so read the contract, and ask payroll if you can. In the example, say they come to 12,000.
- Add the tools you now buy yourself. A Mac spread over the years you expect to keep it, a display, a decent chair, the software licenses the IT department used to quietly renew. In the example, 2,000 a year.
- Add the cost of being a business. An accountant, insurance, a website, bank and payment fees, the professional membership. In the example, 4,000.
The example total is 78,000. That is the revenue the business has to bring in each year to leave you roughly where the salary left you. Income tax still comes out of it, as it did from the salary, and the rules on which costs are deductible differ by country, so ask an accountant rather than assuming.
Step two: remove the days nobody pays for
A year has 260 weekdays. An employer paid for all of them, including the ones you were not there. A client pays for none of those.
In the example: 25 days of holiday, 8 public holidays, 5 days for illness, and 2 for a course or a conference. That is 40 days, which leaves 220 working days.
Use the holiday you will actually take, not the holiday you hope to need. A rate that only works if you never take a week off is a rate that stops working the first time you are tired.
Step three: measure how long your working day really is
The 2,080 figure assumed eight hours a day. What you need is the length of the working day you actually keep at the desk, which for many people is shorter than eight once lunch, errands and the gaps between tasks are out, and for others is longer, because the evenings creep in.
Do not estimate this one if you can avoid it. A remembered working day leaves out exactly the pieces that make it long or short: the late start, the forty minutes after lunch, the evening reply. Record two ordinary weeks instead. Punchcard does it without a timer: it sits in the menu bar, notices which app is in front by name only, and at the closing time you set prints a paper receipt of the day with one line per app and a day total. Ten receipts later you have ten real day lengths. Writing down your start and stop times by hand works too, as long as you include the Saturday morning you “just checked something.”
If you are still employed, measure the job you have now. The hours you keep at your current desk are a reasonable first estimate of the day you will keep at your own.
In the example, the typical day total is 7.5 hours. Over 220 days that is 1,650 hours a year.
Step four: the share you can bill, which is the big one
Freelance hours include finding the next client, writing proposals, sending and chasing invoices, answering mail no one is paying for, keeping your skills current, and waiting for a signed contract. All of it is necessary and none of it is billable.
In the example, say 60 percent of the working hours are billable. That is 990 hours, and 78,000 divided by 990 is about 79 an hour: nearly three times the naive figure, from the same salary.
The share moves the answer more than anything else in the calculation, which is why it is worth seeing it change:
| Billable share (example) | Billable hours | Rate needed |
|---|---|---|
| 50 percent | 825 | about 95 |
| 60 percent | 990 | about 79 |
| 70 percent | 1,155 | about 68 |
If you already freelance, even part time, you can measure your share rather than choose it. Take the hours you invoiced in the two weeks and divide them by the day totals on the receipts for the same days. Punchcard cannot do the split for you: it has no projects, clients, tags or billable rates, so keep a one-line note each evening of who the day’s hours were for. Freelancers: the difference between hours open and hours billed goes further into that ratio.
If you have not started yet, you cannot measure it. Pick a cautious share, and plan to measure properly in your first two months and revise.
What the answer is, and what it is not
The number at the end is a floor. It is the rate at which freelancing pays you what the job paid, assuming the example’s holidays, costs and billable share turn out to be true. It says nothing about what clients in your field will pay. If the market rate is well above your floor, charge the market rate. If it is below, no amount of arithmetic fixes that, and it is better to find out before resigning than after.
A few more honest limits. The receipts see the Mac and nothing else, so a day of client calls on the phone or a site visit needs adding by hand. They record app names, never window titles, document names or URLs, which is why they cannot know which client an hour belonged to. And the rate is only as good as your weakest assumption, so rerun it once you have real numbers.
Once you have a few months of freelance work behind you, run the calculation the other way. The time audit to do before raising your rates starts from what you earned and what you worked, and How to price a monthly retainer from hours you really worked applies the same thinking to a fixed monthly fee.
Questions
Should I add a margin on top of the floor?
Usually, yes. An employer also absorbed the quiet quarter, the client who pays sixty days late, and the laptop that dies in the middle of a deadline. None of that is in the example total. A line for a buffer in step one turns the floor into something you can live on through a bad month.
My country’s taxes work very differently. Does this still hold?
The structure holds everywhere: full cost of the job, divided by the hours someone will pay for. What changes is step one, the employer-side costs you now carry yourself. An accountant who works with freelancers where you live can give you that figure in one conversation.
Can Punchcard work out my rate for me?
No. It records which app was in front, prints a receipt of the day with a total, prints week and month rolls, and exports everything as CSV. It has no billable rates, no invoicing and no project tracking. It gives you the real length of your working day; the division is yours.
Do I need two full weeks of receipts?
One week is often unusual in some way, which is why two is safer. Tracking itself never expires in Punchcard, and the first seven receipts are free, so most of the measurement costs nothing.