How to set your freelance rate: work backward from the salary you need

The tempting way to price your first freelance hour is to take the salary you had, or the one you were offered, and divide it by 2,080, the hours in a 40-hour, 52-week year. An $80,000 salary becomes $38.46 an hour. Charge that, work as hard as you did at the job, and you will end the year with noticeably less than the job paid.

The salary was never the whole of what the job paid you, and 2,080 was never the number of hours anyone paid you to work. The rate has to fix both of those, and each correction can be worked out from figures you either know already or can find in a public table.

The short answer

A freelance rate is a yearly revenue target divided by the hours you expect to bill. The revenue target is the full value of the job you are replacing, grossed up for self-employment tax, plus your business costs. The billable hours are your working hours after time off, multiplied by the share of them a client actually pays for.

Run the numbers below and an $80,000 salary turns into roughly $98 an hour at 60 percent utilization. That is about 2.5 times the naive figure, and none of the gap is profit: it is the cost of the things the employer used to buy without showing you the bill.

What a salary was quietly paying for

The Bureau of Labor Statistics measures what an hour of work costs an employer, not just what it pays the worker. In June 2026, private industry employers spent an average of $46.89 per hour worked. Wages and salaries were $32.82 of it, or 70 percent, and benefits were $14.07, the other 30 percent.^[1] Put the other way round, every dollar of wages came with about 43 cents of benefits on top.

That average is a mix of things, and not all of them follow you into self-employment in the same way. Three are worth pricing one by one.

Health insurance. In March 2026, 71 percent of private industry workers had access to an employer medical plan.^[2] KFF’s 2025 survey put the average annual premium for employer-sponsored single coverage at $9,325, of which the average covered worker contributed $1,440.^[4] The roughly $7,885 difference is what the employer paid, and what you now pay yourself.

Retirement. Retirement benefits were available to 72 percent of private industry workers in March 2026.^[2] If your job matched part of your contributions, that match is income you have to replace before you are even. The order to fund retirement accounts in changes too once there is no match to capture first.

Paid time off. Eighty percent of private industry workers had paid vacation and 81 percent had paid holidays in March 2026.^[2] In 2026, 32 percent received 10 to 14 days of paid vacation after one year of service.^[3] As a freelancer, those days still happen. They just stop being paid, which is why they show up below in the hours rather than in the package.

The employer half of the payroll tax

On a salary, Social Security and Medicare are split. You pay 6.2 percent and 1.45 percent, and your employer pays the same again on top of your wage.^[6] Most people only ever see their own half, on the lines that take a salary down to a paycheck.

Self-employed, you pay both. The self-employment tax rate is 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare.^[7] It applies to 92.35 percent of your net earnings from self-employment, and is generally owed once those earnings reach $400.^[5] So the effective charge on each dollar of profit is a little over 14.1 percent (15.3 percent times 0.9235).

Two details soften it. You can deduct half of the self-employment tax when figuring your adjusted gross income, which lowers income tax but not the self-employment tax itself.^[5] And the Social Security part stops at the wage base, which for 2026 is $184,500.^[6] Above that, only the 2.9 percent Medicare part continues, and an additional 0.9 percent Medicare tax applies above $200,000 for a single filer.^[7]

From an $80,000 salary to a profit target

Take a job paying $80,000 that matched 4 percent of salary into a 401(k) and paid the average employer share of a single health plan. The match and the premium are assumptions chosen for the example; swap in your own.

The step that trips people up is the gross-up. You cannot just add the tax to the package, because the tax is charged on the profit, and the profit includes the tax money. Dividing by one minus 0.1413 solves that: $98,946 of profit, less $13,981 of self-employment tax, leaves exactly the $84,965 the job was worth.

Income tax is left out on purpose. It depends on your deductions, your state and your household, and it falls on the job’s income too, so leaving it out of both sides keeps the comparison fair. What it does change is how much of each deposit you set aside, which is the job of the tax skim and the holding account that pays you a steady salary.

The hours you can actually bill

Now the denominator. The 2,080 hours in a full-time year are the hours a salaried employer pays for, including the holidays and vacation it pays you not to work. BLS reports its employer costs per hour worked for that reason: paid leave is a cost the employer carries.^[1] Nobody carries it for a freelancer.

Start by taking out the time off you actually intend to have. Fifteen days of vacation, ten public holidays and five sick days add up to six weeks, which leaves 46 weeks, or 1,840 working hours. Those figures are an example; use the ones you would want from a job.

Then take out the hours you work but cannot bill: finding the next client, writing proposals, invoicing, bookkeeping, chasing late payments, keeping your skills current. The share of working hours that ends up on an invoice is your utilization rate, and it is the single input that moves the answer most. At 60 percent, 1,840 working hours become 1,104 billable ones.

The revenue target over those hours gives the rate: $107,946 ÷ 1,104 = $97.78 an hour. Against the $38.46 the salary works out to over 2,080 hours, that is a multiple of about 2.5.

What utilization does to the number

Hold the revenue target fixed and vary only the billable share, and the break-even rate swings by more than $40 an hour.

This is why rules of thumb disagree so widely, from adding a third to a salary to multiplying the hourly figure by three. Each of them is quietly assuming a utilization rate. A specialist with one long retainer might bill 80 percent of their time; someone doing many small projects for new clients might struggle to bill half. Pick the assumption that matches the work, and replace it with your own record after a few months of tracking billable and non-billable hours separately.

Day rates, project prices and the market

Clients often want a day rate or a fixed price rather than an hourly one, and both start from the hourly figure. A day rate is the hourly rate times the hours you would bill in a day you give entirely to one client, which is all eight of them, since that client is buying the whole day. A project price is your estimate of billable hours times the rate, plus a margin for the hours you did not foresee.

A fixed price shifts risk. Finish faster than you estimated and the gain is yours; let the scope grow and the loss is yours too. That makes the written scope, the number of revision rounds and what happens when the client asks for more part of the price.

The formula tells you what you need, not what a client will pay. Check the result against what people in your field and region charge: if the market sits well above your break-even, you have room to price up; if it sits below, the fix is in the inputs (higher utilization, lower costs, a narrower specialty) rather than in quietly charging less than it costs you to work.

Finding your inputs in last year’s records

Two of the inputs come from your own records rather than a public table: what the business costs you to run, and what your life costs you to live. The first sets the gap between profit and revenue. The second is the floor under everything, because a rate that covers the business but not the rent is not a rate you can keep.

In LumaLedger, the Income & spending page charts both month by month and leaves out transfers between your own accounts, so moving money from a business account to a personal one does not count as income twice. Software, equipment and insurance show up as their own categories, which gives you the business-costs line from a real year instead of a guess.

LumaLedger

Income & spending

Past 6 months

Apr

May

Jun

Jul

Aug

Sep

IncomeSpending

Spending · Sep$6,178

Housing$2,450

Groceries$780

Transportation$610

Dining$540

Shopping$520

Utilities$390

Everything else$888

Revisit the rate on a fixed schedule, once a year with a full twelve months of records, rather than after one unusually good or bad month. Keep the utilization you actually achieved, the costs you actually paid and the time off you actually took, and run the five steps again. The salary you would have had moves every year, and the rate that replaces it has to move with it.