How to calculate your freelance hourly rate (without undercharging)

An employee earning 60,000 a year is paid for roughly 2,080 hours: 52 weeks of 40 hours, including holidays, sick days, meetings and the afternoon spent on a training course. Dividing 60,000 by 2,080 gives about 29 an hour, and many new freelancers quote something close to that. It feels fair. It is not, because as a freelancer you are only paid for the hours a client is billed for, and you now pay for everything the employer used to cover.

The gap is not small. Once you take out holidays, sick days, proposal writing, invoicing, admin, learning and the quiet weeks between projects, a full-time freelancer usually bills somewhere between 900 and 1,400 hours a year. Charging a salary-derived rate over that many hours gives you roughly half the old salary before tax and costs.

Write down the yearly amount you want to take home after tax — the money that pays rent, food, savings and a life. Be honest rather than modest. This is your target net income, and every other number in the method is built on top of it.

If you are going freelance from a job, use your old net pay plus the value of what the employer gave you for free: pension contributions, health cover, paid leave and equipment. The Freelance vs. Full-Time Comparator does that conversion for you.

List everything the business pays for in a year: software subscriptions, hardware replacement spread over its life, accounting, insurance, a coworking desk, internet, domain names, courses and platform fees. For most solo freelancers this lands somewhere between 5% and 20% of revenue. It is easy to forget items that are paid annually, so go through a full year of bank statements rather than guessing.

Income tax and social contributions come out of what is left after costs. If your combined effective rate is 25%, you need to earn net income ÷ 0.75 in profit, not net income plus 25%. The difference matters: 45,000 ÷ 0.75 is 60,000, whereas 45,000 × 1.25 is only 56,250.

Effective rates vary enormously by country. In Saudi Arabia and most of the Gulf there is no personal income tax, but VAT registration can apply once revenue passes the local threshold. A US sole proprietor pays self-employment tax on top of income tax. A UK sole trader pays income tax and Class 4 National Insurance. Use your own local figure — the calculator's regional presets are a starting point, not tax advice.

1. Start with 52 weeks and subtract holidays, public holidays and a realistic allowance for illness. Most people land between 44 and 47 working weeks.
2. Decide how many hours a week you will actually work, not how many you could work in a crisis.
3. Take out non-billable time. Proposals, email, invoicing, bookkeeping, marketing and learning usually take 25% to 40% of working hours.
4. Take out a gap allowance for the weeks between clients. Two to six weeks a year is normal even for busy freelancers.

A typical result: 46 weeks × 35 hours × 65% billable, minus a four-week gap, gives roughly 960 billable hours. That is less than half of the 2,080 hours an employee's salary covers — and it is why a sensible freelance rate looks shockingly high the first time you calculate it.

Your minimum hourly rate is (gross-up target + business costs) ÷ billable hours. With a 45,000 net target, 25% tax, 6,000 of costs and 960 billable hours: (60,000 + 6,000) ÷ 960 = about 69 an hour. That is your floor — the rate below which the business is quietly paying you less than you decided you need.

Now compare it to the market. If the floor is well below what comparable freelancers charge, you have room to raise it. If it is well above, the answer is rarely to drop your price; it is to raise billable hours by cutting admin, to specialise so you can charge more, or to package work into fixed-price projects so the client buys an outcome rather than a clock.

• Assuming 40 billable hours a week. Almost nobody sustains that for a year.
• Forgetting that holidays are unpaid. Every week off has to be funded by the weeks you work.
• Adding tax as a percentage on top instead of grossing up.
• Pricing from a single competitor's public rate card without knowing their costs or hours.
• Never revisiting the rate. Recalculate once a year and whenever your costs change.