ReckonBoxWhy dividing a salary by 2,080 sets the rate too low
A freelance hourly rate is the income you need, grossed up for tax and spread across the hours you can actually bill, which is far fewer than the hours you work. The salary-divided-by-2,080 shortcut misses both corrections, and it misses them badly.
Take the default: a $60,000 target, $10,000 of business expenses, a 25% tax bite, and a normal 48-week, 40-hour year. Gross the $70,000 you need up for tax and it becomes $93,333. Divide that by all 1,920 working hours and you get $49 an hour. But you cannot bill all 1,920 hours, so that rate never reaches the goal. Bill 60% of them and you have 1,152 billable hours, which puts the real rate at $81 an hour.
Billable hours are the number that matters
Billable hours are the hours a client pays for, which for most freelancers is only half to two-thirds of the working week. Finding clients, writing proposals, invoicing, bookkeeping, and keeping skills current are all real work that nobody pays for by the hour.
A 40-hour week at 60% utilization is 24 billable hours, not 40. The unpaid 16 hours still have to be funded, so they get folded into the rate on the hours that do bill. This is the single biggest reason a freelance rate looks high next to a salary: the salary quietly paid for the non-billable time, and now the rate has to.
| $93,333 to earn, 1,920 working hours | Rate to charge |
|---|---|
| Billing 80% (1,536 hours) | $61 |
| Billing 60% (1,152 hours) | $81 |
| Billing 40% (768 hours) | $122 |
The tax and benefits an employer used to cover
An employer covers half of your payroll taxes, the health plan, the paid time off, and the retirement match, and none of that survives the jump to freelancing. The common rule of thumb is to add 25% to 50% to a salary-equivalent hourly to make up for it, which is what the tax input here does. On a $70,000 need, a 25% uplift is the difference between $70,000 and the $93,333 you actually have to invoice to keep $70,000 after tax and self-funded benefits.
What this does not cover
This sizes a rate, not a tax return. The tax figure is one blended percentage to leave room for what you owe, so real self-employment tax, income tax, deductions, and quarterly payments, which turn on your location and entity, sit outside it. The tool also assumes you fill your billable hours, when a slow month means fewer paid hours and a higher effective need. Rush jobs, retainers, and value-based pricing can all move the real number away from a flat hourly floor.
Set the rate off billable hours, then hold it, because the client who balks at $81 is usually comparing it to a salary that never had to cover the other half of the week.
Frequently asked questions
How do I calculate my freelance hourly rate? Add your target take-home to your annual expenses, gross that up for tax, then divide by the hours you can actually bill. For a $60,000 target plus $10,000 expenses, grossed up 25% to $93,333, over 1,152 billable hours, the rate is about $81 an hour. Dividing by all 1,920 working hours instead gives $49, which is too low to hit the goal.
Why is the rate higher than my old salary per hour? Because a salary hides three costs an employer used to absorb: the non-billable half of your week, the employer share of taxes, and benefits. As a freelancer you bill only part of your hours and fund the rest yourself, so a $60,000 salary that felt like $30 an hour becomes an $81 rate to net the same. The common rule of thumb adds 25% to 50% for exactly this.
What are billable hours? Billable hours are the hours a client actually pays for, which is far fewer than the hours you work. Finding clients, writing proposals, invoicing, bookkeeping, and learning are all real work that no client pays for directly. Most freelancers bill 50% to 70% of their working time, so a 40-hour week is often 20 to 28 billable hours, and the rate has to cover the rest.
Should I charge hourly or by the project? Hourly and fixed-project pricing both trace back to this rate, which is the point of computing it. A project quote is an estimate of the billable hours times a rate that already covers your overhead and tax. Knowing the hourly floor keeps a fixed bid from quietly paying you less than your target once the real hours are counted.
Does this replace tax advice? No, the tax figure is a single blended percentage to size the rate, not a tax calculation. Real self-employment tax, income tax, deductions, and quarterly estimates depend on your location, entity, and income, and they are what an accountant handles. Use this to set a rate that leaves room for tax, then confirm the actual numbers with a tax professional.