The most common way new freelancers set a rate is to take the salary they earned as an employee and divide it by 2,080 — the hours in a 40-hour, 52-week year. It’s simple, and it reliably produces a rate that’s far too low.
Why salary ÷ 2,080 doesn’t work
An employee’s salary is only part of what they cost. As a freelancer, you now pay for:
- Both halves of payroll tax. In the US, self-employed people pay self-employment tax covering both the employee and employer share of Social Security and Medicare, on top of income tax.
- Benefits. Health insurance, retirement contributions and paid time off are now your expense.
- Business costs. Equipment, software, insurance, accounting, a website, professional development.
- Unbillable time. Finding clients, writing proposals, invoicing, bookkeeping and admin are real work that no one pays you for directly.
A step-by-step method
1. Decide on your take-home income
Start with what you need to keep after taxes and business expenses — what you’d think of as your salary. Be realistic, and include savings for retirement if you’re not counting that as a business expense.
2. Gross it up for taxes
Estimate the share of profit you’ll pay in combined income and self-employment tax. Dividing your target by (1 − tax rate) gives the pre-tax profit you need. A tax professional can help you choose a realistic rate for your situation.
3. Add your annual business expenses
List everything the business pays for in a year. Include health insurance premiums if you pay them yourself.
4. Count your billable hours honestly
Start with the weeks you’ll actually work after vacation, holidays and sick days — 44 to 48 is typical. Multiply by your weekly hours, then by the share of that time you can bill. Independent professionals commonly bill 50–70% of their working hours; the rest goes to running the business. If you’re just starting out and still building a client base, expect the lower end.
5. Divide
- Revenue Needed
- equals Take-home ÷ (1 − Tax Rate) + Expenses
- Billable Hours
- equals Weeks × Hours per Week × Billable %
- Minimum Hourly Rate
- equals Revenue Needed ÷ Billable Hours
An example
A bookkeeper leaving a $70,000 job wants the same take-home pay as a freelancer. They estimate $12,000 a year in expenses (including health insurance), a 25% tax set-aside, 46 working weeks of 40 hours, and 60% billable time.
- Pre-tax profit: $70,000 ÷ 0.75 = $93,333.33
- Revenue needed: $93,333.33 + $12,000 = $105,333.33
- Billable hours: 46 × 40 × 0.60 = 1,104
- Minimum rate: $95.41 per hour
The salary-divided-by-2,080 approach would have suggested about $34 an hour — less than half of what’s needed.
From hourly rate to project fee
Many clients prefer a fixed price. Estimate the hours, add a buffer for revisions, meetings and the unexpected (15–25% is common), then multiply by your rate. Track actual hours against estimates on every project — it’s the fastest way to improve your quotes.
Review it every year
Expenses, taxes and your billable share change. Rerun the numbers annually, and before taking on a large long-term client at a discount.
Plug in your own figures with the Freelance Rate Calculator.
This guide is general information, not financial, tax or legal advice. See our disclaimer.