How to Set Your Freelance Rate (From Salary to Hourly)
The most common freelancer pricing mistake is copying an employee's hourly math. An employee's hourly rate is their salary divided by hours worked — but a freelancer has to fund everything an employer used to cover quietly in the background: taxes, health insurance, retirement, unpaid downtime, and the time it takes to run a business.
The naive calculation and why it fails
The tempting shortcut is to take your target annual income and divide by 2,080 — the number of working hours in a standard full-time year (52 weeks × 40 hours). If you want to earn $70,000 a year, that comes out to $70,000 ÷ 2,080 ≈ $34/hour. Set that as your rate, bill every hour you work, and you should hit your target.
Except it does not work. There are four distinct reasons the math breaks down for freelancers.
1. Not all your work hours are billable
Of the roughly 2,080 hours in a work year, a freelancer typically bills only 50 to 70 percent — somewhere between 1,000 and 1,400 hours. The rest is taken up by running the business: writing proposals, chasing invoices, managing contracts, doing your accounting, learning new skills, handling email and calls that never appear on a timesheet, and the gaps between clients when you are actively looking for the next engagement. That overhead is real work. It just does not generate income directly.
2. You pay both halves of FICA
As an employee, you pay 7.65% of your wages toward Social Security and Medicare, and your employer quietly pays a matching 7.65% on your behalf. You never see that second half because it never appears on your pay stub. As a self-employed person, you pay both halves: 15.3% self-employment tax (12.4% Social Security on earnings up to the annual wage base, plus 2.9% Medicare on all earnings). On top of that, you still owe federal and state income tax. A combined effective rate of 30% or more on freelance income is common once you account for both SE tax and income tax.
3. You fund your own benefits
A full-time employer typically contributes to health insurance premiums, matches retirement contributions, and provides paid time off. None of that transfers to self-employment — you pay for all of it out of your gross billings. A self-funded individual health insurance plan can easily cost $6,000 to $12,000 a year or more depending on your age, location, and the coverage level you need. Retirement savings on top of that add further to the cost of being your own employer.
4. Business overhead and unpaid time
Beyond non-billable hours, freelancers carry direct business expenses: software subscriptions, a home-office setup, professional development, accounting fees, liability insurance, and occasionally equipment. Sick days, vacations, and slow periods between projects are also self-funded — there is no paid leave policy. These costs are real and need to be priced in before the first invoice goes out.
The formula
Work out what you actually need to bill in a year, then divide by the hours you can realistically invoice. That is your floor — the rate below which you lose money.
The formula has four inputs. Target take-home is the after-tax income you want to land in your bank account. Business expenses are your direct operating costs. Taxes are an estimate of your combined self-employment and income tax liability. Self-funded benefits are the costs your employer used to absorb — primarily health insurance and retirement contributions. Add all four together to get your gross billing target, then divide by your estimated billable hours for the year.
Worked example: turning a $70,000 goal into an hourly rate
Here is the calculation applied to a freelancer whose target is $70,000 in take-home income.
| Component | Amount | Notes |
|---|---|---|
| Target take-home income | $70,000 | After all taxes and expenses |
| Business expenses | $8,000 | Software, equipment, office, accounting |
| Self-funded health insurance | $9,000 | Individual plan annual premium |
| Tax buffer (SE + income tax, ~30%) | ~$13,000 | Applied to gross above take-home |
| Gross billing required | ~$100,000 | What you need to invoice in total |
| Estimated billable hours | 1,200 hours | ~58% of 2,080 total work hours |
| Required hourly rate | ~$83/hour | $100,000 ÷ 1,200 |
Compare that to the naive calculation: $70,000 ÷ 2,080 = ~$34/hour. If you set your rate at $34 and billed 1,200 hours, you would gross $40,800 — roughly $60,000 short of what you need to cover taxes, health insurance, expenses, and actually reach your $70,000 take-home goal. The gap is not a rounding error; it is the difference between a sustainable freelance business and one that quietly loses money each year.
Calculating your day rate
Many projects and clients prefer to negotiate on a day rate rather than an hourly rate. The conversion is simple: multiply your hourly rate by the number of billable hours in a working day. The important adjustment here is that a "billable day" is not eight hours — it is typically closer to six focused, client-facing hours. The other two hours of a notional workday go toward emails, admin, context-switching, and the small tasks that do not appear on a client invoice.
Using the example above: $83/hour × 6 billable hours = roughly $500 per day. That is the floor. Many experienced freelancers price day rates somewhat above the hourly-to-day conversion to reflect the commitment of a full day's availability and the reduced scheduling flexibility for the client.
Adjusting your rate over time
The number you calculate today is a floor, not a ceiling. Your minimum viable rate is based on costs and a billable hours estimate — it tells you what you cannot go below. It says nothing about what the market will bear, and market rate is often higher than the cost-based floor for skilled, experienced freelancers with a track record.
Revisit your rate at least once a year, and raise it as your demand and skill grow. A rate that stays flat is a pay cut after inflation — the costs on the right side of the formula (health insurance, software, living expenses) rise every year even if your rate does not. Incremental annual increases are much easier for clients to absorb than a large jump after several years of stagnation. Building in a small increase at each contract renewal or at the start of each calendar year is a simple habit that compounds materially over a decade of freelancing.
Strong demand signals — a full pipeline, clients accepting quotes without negotiation, a waiting list — are the clearest indicators that your rate has room to rise. If you are regularly winning every proposal you submit, you are likely underpriced.
Find your minimum rate
Figro's Freelance Rate Calculator takes your income goal, estimated business expenses, and expected billable hours and turns them into an hourly and day rate — right in your browser, with no sign-up required.
Open the Rate Calculator →This guide is educational and does not constitute financial or tax advice. Some pages on Figro include affiliate links; if you purchase through them we may earn a commission at no extra cost to you.