Work out the hourly rate you need to charge as a freelancer or contractor to hit a target income, after overhead, time off, and profit margin.
Software, insurance, accounting, self-employment tax, admin costs
Typically 260 for a 5-day work week, before subtracting time off
Vacation, sick days, holidays you will not bill for
Realistic billable hours, not total hours worked
Start from the income you actually want to keep, then add overhead and a profit margin on top of both, since overhead is a real cost the business has to absorb before anything counts as profit. Divide that total by the number of hours you can genuinely bill in a year, which is work days minus time off, multiplied by billable hours per day, not total hours worked. Non-billable time like sales calls, invoicing, and learning new tools still has to be paid for by the hours you do bill.
A freelancer wants $90,000 take-home, has $8,000 in annual overhead, targets a 10% margin, works 260 days a year minus 25 days off (235 billable days), and can realistically bill 5 hours a day. Base amount is $98,000, profit at 10% adds $9,800, for a total of $107,800 needed. Billable hours per year are 235 × 5 = 1,175. Required rate is $107,800 / 1,175 ≈ $91.74 per hour.
| Cost employers absorb for W2 staff | Who pays it for a freelancer |
|---|---|
| Half of payroll (Social Security / Medicare) tax | The freelancer, entirely, via self-employment tax |
| Paid vacation and sick leave | Unpaid, built into the rate as billable-day reduction |
| Health insurance contribution | Out of pocket, part of overhead |
| Equipment, software licenses | Out of pocket, part of overhead |
| Non-billable admin and sales time | Absorbed into fewer billable hours per day |
This gives a floor rate based on cost recovery, not what the market will actually pay for your skill level or niche. It also treats overhead and profit as flat inputs rather than modeling income tax brackets, which vary by country and personal situation. Use it as a starting sanity check, then adjust for what comparable freelancers in your field charge.
This calculator is for informational purposes only and is not tax, legal, or financial advice. Self-employment tax rules and reasonable overhead vary by country and situation. Consult a qualified accountant for your specific circumstances.