About the Hourly Rate Calculator
Setting an hourly rate is one of the hardest things about working for yourself. Charge too little and you work long hours for less than a salary; charge too much and clients go elsewhere. The most common mistake is to take the salary you would like, divide it by the hours in a working year, and charge that. It leaves out almost everything that makes self-employment different from a job.
This hourly rate calculator works the right way round. It starts from the income you want to take home, adds back the tax on it and the business expenses you have to pay, and divides the total by the hours you can actually bill — after holidays, sick days and non-billable work. The result is the rate you need to charge to reach your income, along with the equivalent day rate and a comparison with the common shortcut.
How to Use the Hourly Rate Calculator
Enter your target take-home income: what you want to keep each year after tax.
Enter your tax rate on profit: your overall rate of income tax and self-employment contributions.
Enter your business expenses for a year.
Enter the hours you work per week and the weeks you work per year.
Enter the share of your time that is non-billable: admin, sales and gaps between jobs.
How the Hourly Rate Is Calculated
pre-tax income = take-home ÷ (1 − tax rate)
revenue needed = pre-tax income + business expenses
billable hours = hours per week × weeks × (1 − non-billable %)
hourly rate = revenue needed ÷ billable hoursStep-by-Step Example
A take-home target of 60,000, a 25% tax rate, 12,000 of expenses, 40 hours a week, 46 weeks and 30% non-billable time.
Pre-tax income: 60,000 ÷ 0.75 = 80,000
Revenue needed: 80,000 + 12,000 = 92,000
Billable hours: 40 × 46 × 0.70 = 1,288
Hourly rate: 92,000 ÷ 1,288 = 71.43
Shortcut: 60,000 ÷ 2,080 = 28.85The shortcut suggests less than 29 an hour. The rate that actually delivers 60,000 of take-home pay is more than two and a half times that.
Why the Shortcut Undercharges
It ignores tax. Take-home pay is what is left after tax, so revenue has to be higher.
It ignores expenses. An employee's equipment, software, insurance and workspace are paid by the employer. A freelancer pays for their own.
It ignores unpaid time. Holidays and sick days earn nothing when you are self-employed.
It ignores non-billable work. Admin, marketing and quoting take real time every week.
Each of these on its own makes a noticeable difference. Together, they explain why a sensible freelance rate is often two to three times the hourly equivalent of a similar salary.
What to Include in Expenses
Count everything the business pays for over a year: computer equipment and its replacement, software subscriptions, phone and internet, insurance, accounting and legal fees, a workspace or a share of home costs, marketing, travel, training, professional memberships, and any pension you fund yourself instead of an employer.
It is also wise to add a margin for the unexpected — a slow quarter, a client who pays late or never, or equipment that fails. Some freelancers add 10–20% to their target income for this.
Checking the Rate Against the Market
Once you know the rate you need, compare it with what clients pay for similar work. If your rate is well above the market, look at the inputs: can you bill more hours, cut expenses, or specialise in work that commands a higher price? If it is well below, you may be undercharging. The calculated rate is a floor to protect your income, not necessarily the rate to quote.
Raising Your Rates
Costs rise every year, and so do your skills and experience. A rate that was right when you started will fall behind unless you review it. Many freelancers raise their rates once a year, often at the start of the year or when a new client signs on, and give existing clients a few weeks' notice.
Raising rates for new clients first is a low-risk way to test the market. If they accept the higher rate without hesitation, existing clients can follow. Losing the occasional client who only wanted the cheapest price is often a good trade for higher income and more time for better-paying work.
When the Rate Feels Too High
If the calculated rate seems higher than you can charge, look at each input rather than simply cutting the rate. Can you bill more hours by reducing admin or filling gaps between projects? Are all the expenses necessary? Is the take-home target realistic for your field and experience? Would specialising in a niche let you charge more?
Cutting the rate below the calculated figure without changing anything else means you will not reach your income target. That may be a sensible short-term choice while you build a client base, but it is worth making knowingly, with a plan to raise the rate as soon as you can.
Understanding Your Result
Hourly rate is the rate that covers your take-home target, tax and expenses.
Day rate shows an average working day and a fully billed 8-hour day.
Revenue needed is the yearly total the rate must bring in.
Billable hours is the number of hours the rate is spread over.
The common shortcut shows how far dividing by 2,080 would undercharge.
Worth knowing lists what the rate has to cover.
When Should You Use This Calculator?
Starting out as a freelancer or contractor.
Reviewing your rates each year.
Moving from a job to self-employment.
Pricing a new service.
Checking whether a client's budget is worth accepting.
Common Mistakes
Dividing a salary by 2,080.
Forgetting tax and expenses.
Assuming every working hour is billable.
Leaving no margin for slow months and late payers.
Never raising rates as costs and skills grow.