Contractor rate calculator
A contractor rate and a salary are not directly comparable. As a contractor you cover your own benefits, equipment, insurance, and unpaid time. This works out the rate that genuinely matches an employed package.
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How this is calculated
Start from the employee package: salary plus the value of benefits. Then add overhead as a percentage, which covers the costs an employer used to carry.
Divide by billable hours — not working hours. This is the step people get wrong: if you bill 1,500 hours but work 2,000, the other 500 hours are unpaid and must be absorbed into your rate.
The break-even rate covers the package exactly. The margin is added on top of that, and it is not greed — it is what lets you survive gaps between contracts.
Worked example: $100,000 salary + $15,000 benefits = $115,000. Adding 25% overhead gives $143,750. Across 1,500 billable hours, break-even is $95.83 an hour. A 20% margin gives a recommended rate of $115.00 an hour.
Common questions
Why is the contractor rate so much higher than the salary rate?
Because a $100,000 salary works out at about $48 an hour across 2,080 hours, but a contractor bills far fewer hours and pays for their own benefits, equipment, and time off. The gap is the cost of those things, not extra profit.
How many billable hours is realistic?
Most independent contractors bill 1,200 to 1,600 hours a year. Anyone quoting 2,000 is either booked solid with no admin time or underestimating the non-billable work.
Should the margin be higher?
A margin of 15–25% is a reasonable starting range. Higher is defensible if you have scarce skills or unreliable demand. Zero margin is not a business — it means your first quiet month puts you behind.
What this does not do: This is a break-even and pricing guide, not tax advice. It does not calculate self-employment tax, company structures, VAT or sales tax, or jurisdiction-specific obligations, all of which vary considerably and should be checked with a qualified adviser.
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