Open ten freelancer forums and you'll find the same two answers to "what should I charge": divide your old salary by 2,080 (the hours in a work year), or copy whatever a competitor lists on their site. Both are guesses wearing a math costume. Salary ÷ 2,080 assumes every hour you work gets paid — never true once you're running the business yourself — and copying a competitor tells you what they charge, not what you need to charge to hit your own number. Below is the actual formula: start from the income you want, add what the business costs to run, and divide by only the hours that get billed. Then two calculators to run your own numbers, a full worked example, the mistakes that quietly erase a freelancer's margin, and how to raise a rate without losing the client.
Why "salary ÷ 2,080" gets it wrong
Take an $80,000 target. Divide by 2,080 hours (40 hours × 52 weeks) and you get $38.46 an hour. That number is wrong in three separate ways, and each one pushes the real rate higher.
First, not every hour you work is billable. A full-time employee gets paid for meetings, training, and slow Tuesdays; a freelancer only gets paid for hours a client actually approves an invoice for. Proposals, admin, invoicing, marketing, and the gap between projects all eat into your week for free. Most full-time freelancers bill somewhere between 50% and 70% of their working hours — so on a 40-hour week, 12 to 20 hours simply never make it onto an invoice.
Second, an employer was quietly paying for things a salary number hides: health insurance, a 401(k) match, paid time off, half of your payroll tax. Go freelance and every one of those becomes a cost you fund yourself, on top of the number you were trying to replace.
Third, self-employment tax. A W-2 paycheck already has Social Security and Medicare withheld and split with an employer; a freelancer owes both halves — 15.3% combined — on business profit, calculated separately from ordinary income tax.
Stack those three and $38.46 an hour turns into something closer to double, which is exactly what the worked example below shows.
The real formula
There are two ways to arrive at an honest rate, depending on what you're starting from.
Building a rate from scratch, the formula is:
hourly rate = (target income + annual business costs) / billable hours
where billable hours = (52 − weeks off) × hours per week × billable percentage. Business costs are everything it takes to run the business — software, insurance, a laptop, a coworking desk — kept separate from personal spending, which is standard small-business bookkeeping.
Converting an existing salary into its freelance equivalent needs one more term, because a salary already assumes an employer covers your benefits and your payroll tax:
required rate = (salary + benefits value + business costs + self-employment tax) / billable hours
Both formulas solve for the same thing — gross business revenue per billable hour — they just start from a different known number. Neither one includes ordinary income tax, which applies to freelance and W-2 income alike and isn't a freelance-specific cost, so it's left out of both.
If you think in day rates instead of hours — common for consulting or on-site work — the Day Rate Calculator runs the same logic directly from billable days per year instead of hours-per-week and billable percentage.
Try it with your own numbers
Swap in your real income target, costs, time off, and billable percentage — the rate recalculates as you type, and the page URL becomes a shareable permalink of your inputs.
The gross annual income you want your freelance business to generate — before this calculator adds in costs and unbillable time.
Software, insurance, equipment, and coworking — the cost of running the business, not your personal living expenses.
Vacation, holidays, and sick days — any week you don't expect to bill a client.
The share of your working hours you can actually bill to clients — the rest goes to admin, marketing, and finding the next project.
A worked example, start to finish
Say you want to earn $80,000 this year, your business costs run $6,000, you take 6 weeks off, you work 40 hours a week, and you can realistically bill 60% of that time.
- Working weeks: 52 − 6 = 46
- Total working hours: 46 × 40 = 1,840
- Billable hours: 1,840 × 60% = 1,104
- Revenue to cover: $80,000 + $6,000 = $86,000
- Hourly rate: $86,000 ÷ 1,104 = $77.90
- Day rate (× 8): $623.19
Compare that to the naive $38.46 from dividing salary by 2,080: the honest rate is more than double. None of the gap is padding — it's the 736 unbillable hours a full-time employee never has to think about, plus the business costs an employer used to absorb. Drop the billable percentage from 60% to 50% and the same $86,000 has to be spread across fewer hours, pushing the rate past $93 — which is why billable percentage is the single input worth the most scrutiny before you quote anyone.
Remember that $77.90 is gross business revenue, not take-home pay. Income tax and self-employment tax still come out of it, along with anything left after business costs — treat it as the floor your invoices need to clear, not the number that lands in your checking account.
Already have a salary to convert?
If you're pricing a jump from a W-2 job rather than building a rate from zero, start from the salary itself instead of an income target — the Salary to Freelance Rate Calculator adds back your benefits, folds in self-employment tax explicitly, and divides by billable hours instead of total hours.
The W-2 salary you're comparing against — what you currently earn, or the paycheck you'd want if you took a full-time job instead.
What your employer pays on top of salary: health insurance, 401(k) match, paid time off. As a freelancer you have to buy all of this yourself, so it belongs in your target income.
Software, insurance, equipment, coworking — the cost of running the business, not personal living expenses.
Hours you expect to actually invoice a client in a year — not your total working hours. Most full-time freelancers land between 1,000 and 1,500.
Using the tool's own defaults — a $70,000 salary, $12,000 of benefits, $5,000 in business expenses, and 1,200 billable hours a year — the required rate comes out to $82.74 an hour, against a naive $70,000 ÷ 2,080 of $33.65. Over $12,000 of that gap is self-employment tax alone, a cost a W-2 paycheck never makes you see directly because it's split with an employer before you're handed a number.
Five mistakes that quietly erase your margin
Treating the calculated rate as take-home pay. It isn't. Every number above is gross business revenue — income tax and self-employment tax still come out of it, and so does anything left in the business account at year-end.
Assuming you'll bill more hours than you actually will. New freelancers routinely plug in 80% or 90% billable time because that's how full a work week feels in their head. Real timesheets — after admin, proposals, and slow weeks — usually land at 50-70%. Every point you overestimate here understates your rate.
Copying a competitor's public rate. A rate you found on someone else's site tells you what they charge, not what covers your costs, your time off, or your years of experience. They may also simply have priced it wrong.
Absorbing scope creep for free. A fair quoted rate and a fair effective rate are different things once a project runs long. Run a finished project's real numbers through the Effective Hourly Rate Calculator to see what a job actually paid per hour once every unbilled call, revision, and delay is counted — it's often the first place a profitable-looking quote quietly turns into a loss.
Setting a rate once and never touching it again. A rate from three years ago hasn't kept pace with your costs, your skill, or inflation. Review it at least annually, whether or not anything about the work has visibly changed.
How to actually raise your rate
Raise it for new clients first — a new proposal is the easiest place to change a number, while an existing contract is the hardest place to renegotiate mid-stream. Set the new rate, quote it with confidence, and let existing work run at its old rate until a natural renewal point.
For existing clients, give real notice — 30 to 60 days is standard — and state the new number plainly: "Starting [date], my rate is moving to $X." No apology, no lengthy justification; a short note referencing rising costs or growing experience is enough. Clients who've valued the work rarely leave over a reasonable increase, and the ones who do were usually the least profitable to keep.
Being consistently fully booked, or turning down work at your current number, is the clearest market signal you're underpriced — a stronger signal than any calculator. If a chunk of your work is quoted in days rather than hours, run the same increase through the Day Rate Calculator so your day-rate clients see a number built the same way as everyone else's.
Methodology & sources
The core formula is hourly rate = (target income + business costs) / billable hours, with billable hours = (52 − weeks off) × hours per week × billable %; the salary-conversion version adds benefits value and self-employment tax before dividing. Both match the calculators embedded above, and neither includes ordinary income tax, which isn't specific to freelancing.
Pricing freelance work correctly matters at real scale: the U.S. Bureau of Labor Statistics' Contingent and Alternative Employment Arrangements survey found that 7.4% of employed U.S. workers — about 11.9 million people — identified independent contracting as their sole or main job in 2023, up from 6.9% in 2017. The self-employment tax mechanics referenced above — 15.3% combined, split into 12.4% Social Security and 2.9% Medicare — follow the IRS's own description of Self-Employment Tax (Social Security and Medicare Taxes).