Why Dividing Your Salary by 2,080 Hours Does Not Work
A full-time employee earning $70,000 gets about $33.65 an hour ($70,000 ÷ 2,080 hours). A freelancer who charges that rate will be disappointed, for four reasons:
- Not every hour is billable. You spend time on proposals, invoicing, emails, learning and finding clients, none of which pays.
- You do not get paid time off. Vacation, holidays and sick days are unpaid.
- You pay for what the employer used to cover: health insurance, retirement savings, software and equipment.
- You pay more tax. Employees split Social Security and Medicare tax with their employer; the self-employed pay both halves.
The result is that your rate must be much higher than a salary equivalent for the same take-home pay.
👉 Find your own hourly rate with our free freelance rate calculator →
The Baseline Calculation
The example uses a single filer with no state income tax, and aims to take home $70,000 after everything:
| Piece | Amount |
|---|---|
| Take-home pay you want | $70,000 |
| Health insurance and retirement | $9,000 |
| Business expenses | $6,000 |
| Estimated self-employment and income taxes | $22,963 |
| Revenue you must earn | $107,963 |
Hours in the year: 48 weeks × 40 hours = 1,920 hours, of which 60% are billable = 1,152 billable hours.
Rate = $107,963 ÷ 1,152 hours = $93.72 an hour, or $749.74 for an 8-hour day. The estimated taxes are 22.5% of your profit, because freelancers owe the 15.3% self-employment tax (12.4% for Social Security up to a yearly limit plus 2.9% for Medicare) on top of income tax. Our guide on how much to set aside for self-employment tax explains it in detail.
The Biggest Lever: How Many Hours You Can Bill
Everything else stays the same, only the share of your time that you bill changes:
| Billable Share of Hours | Billable Hours per Year | Hourly Rate Needed | Day Rate (8 Hours) |
|---|---|---|---|
| 40% | 768 | $140.58 | $1,124.61 |
| 50% | 960 | $112.46 | $899.69 |
| 60% | 1,152 | $93.72 | $749.74 |
| 75% | 1,440 | $74.97 | $599.79 |
| 90% | 1,728 | $62.48 | $499.83 |
Swipe sideways to see all columns. Going from 40% to 75% billable cuts the rate you must charge by 47%. Beginners often bill only 40% to 50% of their time, because they are still looking for clients; experienced freelancers with steady work reach 70% or more. Track your hours for a month to find your real figure.
Other Inputs That Change the Rate
Weeks you work
| Weeks Worked per Year | Hourly Rate Needed |
|---|---|
| 44 | $102.24 |
| 48 | $93.72 |
| 50 | $89.97 |
Four weeks off (48 weeks worked) is already built into the baseline. Taking four more weeks off (44 weeks worked) raises the rate by about $8.50 an hour.
Your take-home goal
| Desired Take-Home Pay | Revenue Needed | Hourly Rate | Effective Tax Rate |
|---|---|---|---|
| $50,000 | $80,344 | $69.74 | 20.6% |
| $70,000 | $107,963 | $93.72 | 22.5% |
| $100,000 | $151,120 | $131.18 | 24.9% |
Because income tax rises with income, every extra dollar you want to keep requires more than a dollar of extra revenue.
Benefits and expenses
- No health or retirement budget ($0 instead of $9,000): the rate falls to $82.48, a difference of $11.24 an hour. Counting benefits is not optional if you are paying for them yourself.
- Double the business expenses ($12,000 instead of $6,000): the rate rises to $98.93.
- A 5% state income tax: the rate rises to $100.06, because the estimated taxes grow from about $22,963 to $30,267.
What Happens When You Undercharge
Suppose you charge $60 an hour and bill 1,152 hours. Revenue is $69,120. After the $6,000 of expenses, about $12,800 of taxes and $9,000 of benefits, you would take home about $41,400, far below the $70,000 you wanted, while working the same hours. Undercharging is the most common way freelancers burn out, and it is hard to fix later because clients remember your first price.
Rates also vary by field, location and experience, so use the calculation as a floor, then compare it with what clients in your market pay.
Hourly, Day Rate or Project Price?
- Hourly is simple, but it rewards slow work and caps your income by hours.
- A day rate suits full-day engagements, such as the $749.74 in the example.
- A project price can earn more per hour when you are efficient. Estimate the hours, multiply by your hourly rate, then add a buffer of 15% to 25% for revisions and delays.
- A retainer gives steady income for ongoing work, with a fixed number of hours each month.
Whatever model you choose, check the effective hourly rate against the number you calculated.
Five Steps to Set Your Rate
- Choose your take-home goal and add benefits and business expenses.
- Estimate your working weeks after vacation, holidays and sick days.
- Estimate your billable share honestly, using tracked hours if you have them.
- Add taxes, including self-employment tax and your state's income tax.
- Divide and compare with market rates, then adjust your offer or your costs.
If you want to know how many clients or projects you need to cover fixed costs, see our guide to break-even analysis.
Frequently Asked Questions
How do I calculate my freelance hourly rate?
Add your desired take-home pay, benefits, business expenses and estimated taxes to get the revenue you need, then divide by your billable hours for the year.
Why is the self-employment tax so much?
Employees pay half of Social Security and Medicare tax and employers pay the other half. Self-employed people pay both halves, which is 15.3% on most of their net earnings, partly offset by a deduction.
What percentage of my time will be billable?
It varies. New freelancers often bill 40% to 50%, while established ones with steady clients reach 60% to 75% or more. Track your time for a month to see yours.
Should I charge less when I am starting out?
A lower rate can help win the first clients, but undercharging makes it hard to cover your costs and to raise prices later. Consider starting with a modest discount for a limited time instead of a permanently low rate.
Do I need to include taxes in my rate?
Yes. As a freelancer no one withholds your taxes, so your rate must be high enough to pay them and still leave the take-home pay you want.
Conclusion & Recommended Next Steps
Your freelance rate has to cover the pay you want, the benefits and costs your employer used to carry, the unpaid hours and the taxes. Work from your goal to a revenue number, divide by the hours you can really bill, and treat the result as a minimum. Put your own figures in the calculator and test how a better billable share or a different goal changes the rate.
Freelance Rate Calculator
Find the hourly and day rate for your take-home goal.
Self-Employment Tax Calculator
Estimate the tax on your freelance income.
Break-Even Calculator
See how much you must sell to cover your costs.
401(k) & Roth IRA Calculator
Plan the retirement savings your rate must cover.
Disclaimer: This guide is intended solely for educational and informational purposes and does not constitute personalized financial, legal, or tax advice. Tax estimates are simplified (single filer, standard deduction, no state tax unless noted) and the figures above are illustrations based on the stated assumptions. Consult a qualified tax professional about your own situation.