Setting a Freelance Rate: Start From the Salary You Are Replacing
New freelancers price against their old hourly wage and undercharge by a third. The salary-to-rate conversion that accounts for self-employment tax, benefits, unbillable time, and gaps — with the arithmetic shown.
Published · Paycheck & Income · 2 min read
The most common freelance pricing mistake is one division: $80,000 salary ÷ 2,080 hours ≈ $38, round up to $40, feel bold. Six months later the freelancer is working harder than they ever did employed and somehow earning less. The error is that a salary buys 2,080 hours of employment — taxes half-paid, benefits included, every hour billable. A freelance rate has to buy all of that back.
The conversion, step by step
Starting from an $80,000 salary you want to replace:
- Add the employer costs you now carry: the employer half of FICA (~7.65%), health insurance (say $6,000–$10,000 a year solo), retirement match you are replacing (3–5%). Target is now roughly $100,000 of revenue.
- Count only billable hours. Freelancers spend a large share of working time on sales, admin, invoicing, and learning — none of it billable. A common realistic figure is 20–25 billable hours a week, not 40. Call it 1,100 billable hours a year after modest time off.
- Divide: $100,000 ÷ 1,100 ≈ $90 an hour. Against the naive $40, this is the honest number — and it is why established freelancers' rates look "high" to employees. They are not high; they are complete.
Sanity checks on the result
Cross-check against the market for your skill and region — if the honest rate is far above market, the answer may be a different niche, productized services, or retainers rather than a lower rate. Check it against the 1.3–1.5× contractor multiplier: $80,000 ÷ 2,080 × 1.4 ≈ $54 for a full-time, fully-billable contract — the gap between $54 and $90 is the unbillable-hours assumption, which shrinks for freelancers with steady anchor clients.
Raise it on schedule
New freelancers also forget raises. An employee gets one annually by default; a freelancer must impose their own — commonly on new clients first, existing clients at renewal. The salary-to-hourly calculator runs the base conversion with your own hours assumption, and the self-employment tax calculator verifies the tax layer sitting inside the target revenue number.
Run your own numbers
More on paycheck & income
- Pre-Tax vs. Post-Tax Deductions: The Order of Your Paycheck Matters
- Raise or Bonus? Why $5,000 Is Not Always $5,000
- What You Actually Cost Your Employer (It Is Not Your Salary)
This article is general education, not tax, legal, investment, or financial advice. Figures used in examples are illustrations, not quotes or predictions. For decisions that depend on your full situation, talk to a qualified professional.