Salary ÷ 2,080 Is the Wrong Answer
The naive conversion assumes 2,080 paid hours a year, all of them billable, with an employer covering everything invisible. Every one of those assumptions is false when you are freelance.
| What an employer paid for | Annual cost to you |
|---|---|
| Employer half of FICA | ~7.65% of income |
| Health insurance | $6,000–$15,000 |
| Paid holiday and sick leave | 3–5 weeks of income |
| Equipment and software | $1,500–$5,000 |
| Retirement match | 3–6% of salary |
| Unbillable time (sales, admin) | 30–40% of your hours |
Working Backwards
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1. Target take-home
2. + health insurance and benefits you now buy
3. + self-employment tax (15.3% on net earnings)
4. + business expenses
5. ÷ (1 − profit margin) = revenue needed
6. ÷ billable hours per year = hourly rate
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Billable hours are the step people skip:
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(52 − weeks off) × hours per week × billable %
= (52 − 6) × 40 × 0.65
= 1,196 billable hours
`
Not 2,080. That difference alone is 74%.
Worked Example
Target take-home $100,000, six weeks off, 40-hour weeks, 65% billable, 10% margin:
| Line | Amount |
|---|---|
| Take-home target | $100,000 |
| Health insurance | $7,200 |
| Self-employment tax | ~$15,100 |
| Business expenses | $8,000 |
| Subtotal | $130,300 |
| ÷ 0.90 (10% margin) | $144,800 |
| ÷ 1,196 billable hours | $121/hour |
A $100,000 salary is a $121/hour freelance rate. Charging $50 because "that's $100k ÷ 2,080"
puts you at roughly half of what you were making.Raising It
Quote projects, not hours. Efficiency then pays you instead of cutting your invoice.- Raise rates on new clients first. You keep existing revenue while testing the market.
- Specialise. Rate is a function of how replaceable you are, not how fast you type.
- Track your actual billable percentage for a month. It is almost always lower than the
number you assumed, and it moves your rate more than any other input here.Your Salary Is Not Your Rate
The instinct is to divide a target salary by 2,080 hours and quote the result. That number
is wrong by a factor of roughly two, for two independent reasons.
You cannot bill every hour you work. Sales, proposals, invoicing, admin, bookkeeping and
your own learning are real hours that no client pays for. Realistic billable utilisation is
60–70% for an established freelancer and considerably lower in the first year.
You are paying for everything an employer used to. Employer payroll taxes, health
insurance, retirement contributions, paid holiday, sick leave, equipment, software, insurance
and professional development were all invisible line items in a salary.
From a $100,000 salary Naive rate (÷ 2,080) $48/hour ÷ 1,400 billable hours $71/hour + 30% for benefits and taxes $93/hour + 10% for unpaid and bad debt ~$102/hour
Roughly double the naive figure. That is not greed — it is the same take-home pay.The Arithmetic
`
billable hours = 52 weeks − holiday − sick − admin time
true rate = (target income + business costs + taxes) ÷ billable hours
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Work out the billable hours first and honestly. Four weeks of holiday, one week of illness, and 30% of the remainder on non-billable work leaves about 1,300 hours from a notional 2,080 — and 1,300 is the number the division uses.
Use the [freelance hourly rate calculator](/finance/freelance-hourly-rate-calculator) to work from a target income, and the [contractor rate calculator](/finance/contractor-rate-calculator) to compare a contract rate against a salaried package.
Hourly, Daily, or Fixed
| Model | Best for | The risk it carries |
|---|---|---|
| Hourly | Undefined scope, ongoing support | You are paid for time, so efficiency costs you |
| Daily | Consulting, on-site work | Half-days are awkward to price |
| Fixed price | Well-defined deliverables | Scope creep is yours to absorb |
| Retainer | Ongoing availability | Under-use feels expensive to the client |
| Value-based | Clear commercial outcome | Requires access to the client's numbers |
Raising Rates
The most reliable pattern is to raise the rate for new clients first and let existing ones follow at a natural boundary — a renewal, a new phase, the start of a year. Give notice, state the new rate without justifying it at length, and expect some attrition.
Losing a fifth of your clients on a 25% increase leaves you ahead on income and with fewer hours worked. That trade is the whole argument, and it is why under-pricing is more dangerous than over-pricing: an under-priced freelancer is busy, exhausted and still short.
The Rate Is Not the Whole Deal
Payment terms decide whether the rate reaches your account. Net 30 means working a month before invoicing and another before payment; a deposit up front and milestone payments are worth more than a few percent on the rate.
Kill fees, late-payment interest, defined revision rounds and a written scope all protect the same thing: the hours you assumed you were selling.
*Rates, taxes and benefit costs vary enormously by country and situation. These are structural guidelines, not tax or financial advice — check the specifics for where you are.*