Work hours & pay
Contractor rate calculator
Find the day rate and hourly rate a contractor needs to charge to match a given employee salary once overhead and unbilled time are covered.
Contractors rarely bill 52 weeks: 46 to 48 after holidays, admin and gaps between contracts is more realistic.
From a salary to a rate you can quote
A contractor rate has to do more than replace a salary. It must also cover the benefits an employer would have paid and the hours you cannot bill. The method here has three steps: add overhead to the target salary to get a fully loaded cost, count the hours you can realistically invoice in a year, then divide the loaded cost by those hours. The formula is rate = salary × (1 + overhead%) ÷ (billable weeks × billable hours).
Take a $60,000 target salary with 30 per cent overhead. The loaded cost is $78,000. Billing 30 hours a week for 46 weeks is 1,380 billable hours, so the hourly rate is $56.52. Spread over a five-day week the day rate is $339.13. The 30 per cent covers things a permanent job gives for free: pension contributions, paid holiday and sick days, payroll tax, equipment, insurance and software.
| Target salary | Overhead | Billable hours/yr | Hourly rate |
|---|---|---|---|
| $50,000 | 30% | 1,380 | $47.10 |
| $60,000 | 30% | 1,380 | $56.52 |
| $80,000 | 30% | 1,380 | $75.36 |
| $60,000 | 50% | 1,380 | $65.22 |
Setting overhead and billable time
Two numbers decide whether your rate is sustainable. Overhead is often underestimated; once self-employment tax, insurance, unpaid holiday and your own pension are added, 30 per cent is a floor and many consultants use 50 per cent or more. Billable weeks are the second trap: no one invoices all 52. Allow four to six weeks for holiday and illness, plus time between contracts and unpaid admin, and you land around 46 billable weeks.
Treat the result as a minimum to break even against the salaried equivalent, not a market price. If demand is strong or the work is specialised, charge above it; if you are building a portfolio, you might accept less on some jobs and recover it on others. Recalculate whenever your costs change, and quote a day rate for fixed-scope work but an hourly rate where the hours are open-ended, so you are paid for every hour the client uses.
Frequently asked questions
What overhead percentage should a contractor use?
Thirty per cent is a common minimum, covering tax, insurance and unpaid time off. Many independent consultants use 50 per cent or more once pension, software and gaps between contracts are included.
Why is my contractor rate so much higher than the salary?
Because it also pays for benefits and the weeks you cannot bill. A salary looks smaller because the employer quietly pays pension, holiday, sick pay and payroll tax on top of it.
How many billable hours are in a contracting year?
Far fewer than the 2,080 in a full-time year. At 30 chargeable hours a week for 46 weeks you reach about 1,380, and admin and sales eat into even that.