Guides / Pricing

How to Convert a Salary to a Freelance Rate (With a Worked Example)

Last updated: October 30, 2026. General information only, not tax or financial advice.

Imagine you receive a job offer for $90,000 a year, but you are also considering working for yourself. What hourly rate would you need to charge to end up just as well off as you would be in the job? Many people divide the salary by 2,080 hours and arrive at about $43 an hour. That number is far too low, and charging it can leave you earning thousands of dollars less than the job would have paid. This guide shows how to convert a salary into a freelance rate properly, with a full worked example, so you can compare offers or price your first contract with confidence.

Why salary divided by 2,080 fails

A standard full-time schedule is 40 hours a week for 52 weeks, which adds up to 2,080 hours. Dividing a salary by 2,080 treats every one of those hours as billable, and it ignores everything else an employer provides. An employee is paid during vacations, public holidays, sick days, internal meetings, training sessions and slow periods. A freelancer is paid only for the hours a client agrees to pay for.

Most independent professionals can bill somewhere between 1,000 and 1,400 hours in a year, because the rest of their time goes to finding clients, writing proposals, invoicing, bookkeeping, learning new skills and waiting between projects. The salary-based number also leaves out taxes and benefits, which are the two largest hidden differences between employment and freelancing.

What an employee salary really includes

A salary is only one part of what an employer spends on a person. When you move to freelancing, you have to replace each of the following out of your own revenue:

• Payroll taxes. An employer pays 7.65% of wages toward Social Security and Medicare, in addition to the same 7.65% withheld from the employee. A freelancer pays both halves through self-employment tax, which is 15.3% of 92.35% of net earnings, with the Social Security portion capped at an annual wage base. Our 1099 vs. W-2 tax guide shows the math.
• Health insurance. Many employers cover a large share of the premium. As a freelancer you usually pay the whole cost, although the premiums may be deductible.
• Retirement contributions. An employer match is free money that you must replace with your own savings.
• Paid time off. Vacation, holidays and sick days are paid for employees and unpaid for freelancers.
• Equipment and software. Computers, licenses, desks and phones are often provided by the employer.
• Training and professional costs. Courses, memberships and conferences may be covered for employees.
• Workplace protections. Employees are generally covered by programs such as unemployment insurance and workers’ compensation. Freelancers typically have to arrange their own protection or go without it.

Surveys of employers often show that benefits and employer-paid taxes add a significant share on top of base pay, commonly a quarter or more of total compensation. The exact figure varies a great deal between companies, so use your own offer letter and benefit statement where you can.

Step by step: converting a salary to a freelance rate

1. Find the take-home pay the salary represents. Subtract the employee share of payroll tax (7.65%) and your estimated income tax rate from the salary. This is the amount you would actually deposit each year.
2. List the costs you must now cover yourself. Add health insurance, retirement savings and business overhead such as software, equipment, insurance and accounting.
3. Estimate your billable hours. Take the weeks you expect to work, after vacation and downtime, and multiply by the hours per week you can realistically bill.
4. Work out the gross revenue required. You need enough revenue to leave the same take-home pay after income tax, self-employment tax, overhead and benefits.
5. Divide revenue by billable hours. The result is your minimum hourly rate.
6. Add a buffer. Late payments, scope creep and gaps between clients are normal, so many freelancers add 10% to 20%.

Worked example: a $90,000 job offer

Suppose the job pays $90,000. With 7.65% payroll tax and a 22% income tax rate, the employee’s take-home pay is about $63,315 a year. As a freelancer you want to match that, so you also need to cover $9,000 of health insurance, $3,600 of retirement savings (roughly what an employer might match), and $5,000 of overhead. You plan on five weeks off, so you work 47 weeks.

Because self-employment tax and income tax both apply to your profit, the calculator finds the profit that leaves $63,315 after both taxes. In this example that comes to about $96,775 of net profit before tax. Adding overhead and benefits gives gross revenue of about $114,375 at 25 billable hours a week, which works out to roughly $97 per hour across 1,175 billable hours. Here is how the answer changes with your weekly billable hours:

Notice two things. First, the minimum rate is roughly 2.2 times the naive $43 figure. Second, the number of billable hours matters enormously. Dropping from 30 hours to 20 raises the rate you must charge by more than half. These figures come from simplified assumptions, so enter your own numbers in the rate calculator to see your result.

A useful rule of thumb

If you want a quick estimate before doing the full calculation, many freelancers find that the rate needed to match a salary is somewhere between 1.5 and 2.5 times the salary divided by 2,080. The range is wide because it depends on how much of your time is billable, what benefits you must replace and how much overhead you carry. Treat the multiplier as a sanity check only, and rely on the full calculation when you set a price.

What else to compare besides money

A fair comparison does not stop at the hourly rate. Think about these factors before you decide:

• Stability. A salary arrives every two weeks. Freelance income can vary from month to month, so many people keep three to six months of expenses in savings.
• Client concentration. If one client provides most of your income, you carry a risk similar to having a single employer without the employment protections.
• Growth and learning. Jobs may offer mentoring, promotions and structured training. Freelancing offers control over projects but requires you to arrange your own development.
• Other benefits. Stock options, bonuses, parental leave and tuition support are hard to price, but they have real value.
• Administrative work. Contracts, invoices, estimated tax payments and bookkeeping become your responsibility.
• Flexibility. Choosing your hours, clients and location may be worth more to you than a few thousand dollars.

A note on contractor classification

If you are offered contract work by a company that would otherwise hire you, be aware that classification as an independent contractor depends on the actual working relationship, not just on what the agreement says. Factors such as who controls how and when the work is done, whether you use your own tools, and whether you can work for other clients all matter. Misclassification can create tax and legal problems for both sides, and the rules differ by agency and state. If you are unsure, consult a qualified professional before signing.

Putting it into practice

When you convert a salary to a freelance rate, remember that you are pricing a whole business, not a single job. Start with the take-home pay you want, add every cost your employer used to cover, divide by the hours you can truly bill, and then add a cushion. Once you have a number, test it against what clients in your field pay, and consider whether project or retainer pricing would suit you better. Our guide to retainer, hourly and project pricing explains your options, and our step-by-step rate guide goes deeper on the formula.

This article is general information using simplified assumptions. Tax rules and benefit costs vary by person and location, so consider consulting a licensed CPA or enrolled agent.