How to Calculate an Hourly Rate From a Salary

To turn a salary into a freelance hourly rate, do not just divide by 2,080 hours. Take the salary you want, add the benefits and employer costs you now have to cover yourself, add your business expenses and tax, then divide by your realistic billable hours, which are far fewer than a full working year. A freelance hour is worth much more than a salaried hour, because it has to pay for everything a job used to provide.

This is the calculation that catches almost everyone leaving employment. They take their old salary, divide by the standard 2,080 working hours in a year, and quote that as their hourly rate. The result is a number that quietly bankrupts them, because it ignores everything an employer used to pay for behind the scenes.

Why dividing salary by 2,080 fails

A full-time year is often counted as 2,080 hours, which is 40 hours a week times 52 weeks. If you earned 52,000 as an employee, that simple division suggests 25 an hour. As a freelance rate, that figure is a trap, for two separate reasons.

First, you will never bill 2,080 hours. Employees are paid for holidays, sick days, training, meetings, and idle time. Freelancers are paid only for hours a client will actually pay for, and a large slice of every week goes to admin, marketing, and finding the next job. Your real billable hours are a fraction of 2,080.

Second, that 52,000 salary was only part of what your employment cost. On top of it, your employer paid social contributions, pension, paid leave, equipment, software, and often health cover. As a freelancer, all of that is now your bill. The hourly rate has to fund it.

Step one: rebuild the full cost of your old job

Start by working out what your employment really cost, not just the salary you saw. Take your target salary, the income you want to keep, then add everything the employer used to provide: paid holiday and sick leave, pension contributions, social or payroll taxes they paid on your behalf, and any benefits like health insurance, equipment, or training budgets.

This grossed-up figure is the real number you need to replace, and it is meaningfully higher than your old salary. Replacing a 52,000 salary often means earning 65,000 or more before you are genuinely as well off as you were, simply because you now pay for the parts that used to be invisible.

If your eventual goal is a day rate rather than an hourly one, the same logic and inputs apply, and how to calculate your freelance day rate walks through that version.

Step two: add business costs and tax

On top of replacing your old total compensation, add the costs of running the business itself: software, insurance, a workspace, accountancy, professional memberships, and equipment you now buy yourself.

Then account for tax. As a self-employed person you owe income tax and, in most countries, self-employment or social contributions, and the rules differ from those for an employee. The figure you want to keep is what remains after tax, so the rate must be high enough that tax does not eat into your target. The exact percentages depend on where you live, so use local figures or check with an accountant. The point is to never set a rate on pre-tax thinking, because the tax bill is real and it is yours now.

Step three: count your real billable hours

Now the divisor. Out of a notional 2,080 hours, strip out everything you will not bill. Holidays, sick days, public holidays, and then the non-billable working time: marketing, proposals, admin, invoicing, learning, and the gaps between clients.

A realistic billable figure for many freelancers is somewhere around 1,000 to 1,400 hours a year, often less when work is variable. The exact number depends on your field and how much of your time is genuinely sellable. The key is to be honest. Overestimate your billable hours and your rate comes out too low to ever hit your target.

Put it together

Take your grossed-up income target plus business costs and tax, then divide by your realistic billable hours. Following the earlier example, suppose you need to cover 80,000 in total (replacing salary, benefits, costs, and tax) and you can realistically bill 1,200 hours. That is about 67 an hour, more than two and a half times the naive 25 from dividing salary by 2,080.

That gap is not greed. It is the true cost of being your own employer. The day rate and hourly rate calculator does this conversion for you: enter your target, your costs, and your billable time, and it returns the rate. The reasoning behind each input is expanded in the freelance rate calculator guide.

Sense-check against your market

A calculated rate is a floor, the minimum that makes freelancing worthwhile versus your old job. Compare it to what clients in your field actually pay. If the market pays well above your floor, you have room to charge more. If it sits below, you may need to raise your target's efficiency, win higher-value work, or reconsider whether the numbers work.

Where to pitch within the realistic range, and how to grow the rate over time, is covered in how much should a freelancer charge. Once you settle on a rate, billing it cleanly is quick: the free invoice generator produces a numbered invoice in minutes, with no signup and nothing stored on a server.

Common questions

Why can I not just divide my salary by 2,080 hours?

Because that ignores two things. First, you will never bill 2,080 hours as a freelancer, since a large share of every week goes to admin, marketing, and finding work, and you also lose holidays and sick days you used to be paid for. Second, your old salary was only part of what your job cost. Pension, paid leave, employer taxes, equipment, and benefits were all paid on top, and now they are your bill. The freelance rate must cover all of it.

How much higher should my freelance rate be than my old salary?

Higher than most people expect. Once you replace the benefits and employer costs your job used to provide, add your own business expenses, account for self-employed tax, and divide by realistic billable hours rather than a full working year, the rate often lands at two to three times the naive salary-divided-by-2,080 figure. That multiple is not greed. It is the true cost of being your own employer.

What counts as a billable hour?

Only the hours a client will actually pay you for. Time spent on marketing, proposals, invoicing, admin, learning, and the gaps between contracts is real working time, but it is not billable, so it does not go in the divisor. A realistic billable figure for many freelancers is somewhere around 1,000 to 1,400 hours a year. Be honest here, because overestimating billable hours is the fastest way to set a rate that is too low.

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Related articles

• How to Calculate Your Freelance Day Rate
• How Much Should a Freelancer Charge?
• The Freelance Rate Calculator Guide