Freelance Rate vs. Salary: Converting Between the Two

Why a direct comparison misleads

Dividing an annual salary by 2,080 (40 hours × 52 weeks) gives an hourly wage, and it is tempting to compare that number directly with a freelance rate. The comparison is misleading because a salary comes bundled with costs paid by the employer, and because an employee is paid for every working hour, including holidays and meetings. A freelancer is paid only for billable hours and covers every overhead personally.

What an employer pays on top of salary

The true cost of an employee is commonly estimated at 1.25 to 1.4 times their salary once employer payroll taxes, pension or retirement contributions, health or other insurance, paid leave, equipment, software, office space and training are included. As a freelancer, each of those costs becomes yours. Paid leave in particular disappears: every week off is a week of zero revenue.

Converting a salary to an equivalent freelance rate

To find the freelance rate that matches a salary, start with the take-home pay you would receive as an employee. Enter that as your target income in the calculator, add the expenses your employer currently covers, and use realistic figures for time off and utilization.

For example, a salary that leaves 75,000 after tax, with 6,000 of business costs, 6 weeks off, 70% utilization and a 10% buffer, requires a freelance rate of roughly 90 per hour. The same salary divided by 2,080 suggests only about 48. The gap is not greed; it is the cost of running a one-person business.

Converting a freelance rate back to a salary

To judge whether a contract offer is worth more than a job, run the calculation in reverse: multiply the rate by your realistic billable hours to get annual revenue, subtract expenses and a buffer, then apply your effective tax rate. What remains is the take-home figure to compare with a salaried offer's net pay.

Rules of thumb

A widely used shortcut is that a freelance hourly rate should be about salary ÷ 1,000. For a 75,000 salary that suggests 75 per hour. It is a reasonable first guess, but it hides assumptions about tax, expenses and utilization that may not match your situation. Use the shortcut to check whether you are in the right range, then use the full calculation to set your actual price.

Non-financial differences

Freelancing trades stability for control. You choose clients, projects and schedule, and your income can scale with your rate, but there is no guaranteed paycheck, no employer pension match and no paid sick leave. A healthy profit buffer and a cash reserve of three to six months of expenses are what make the higher rate translate into a secure income.