Why 'salary ÷ 2,080' is wrong
A 40-hour/week × 52-week year (2,080 hours) assumes you bill every working hour and never take vacation, get sick, do admin, market yourself, write proposals, send invoices, or chase payments. In reality, even full-time freelancers bill 50–75% of nominal hours. Senior consultants charging premium rates bill closer to 1,000 hours/year because client-getting and IP work consume the rest.
- • Hours you can't bill: marketing, sales calls, proposals, admin, accounting, training, vacation, sick days, dead-air weeks between projects.
- • Rough benchmarks: 1,500 billable hrs = aggressive grind; 1,200 = healthy full-time; 900–1,000 = senior consulting; 500–800 = lifestyle/part-time.
Why benefits replacement is expensive
Employer-paid health insurance for a family can easily exceed $25k/year. A 6% 401(k) match on a $120k salary is $7,200. Two weeks PTO + holidays + sick days is ~6% of salary. Add equipment, training budgets, and software — total benefits load for a senior W-2 employee is typically 25–35% of salary. Freelance rates must rebuild every line of that or you're taking a real pay cut, even at the same nominal hourly.
The most common mistake new freelancers make is dividing their old salary by 2,080 hours and calling that their rate. That's a 40% pay cut once you account for self-employment tax, benefits you now buy yourself, unpaid admin time, and the months when work dries up. This calculator backs out the real freelance rate that matches a target W-2 salary, with all four adjustments built in.
What each input means
Get these inputs right and the output is reliable. Get them wrong and the calculator just multiplies bad assumptions.
Target W-2-equivalent salary
What you want your freelance income to feel like in lifestyle terms — same take-home, same benefits, same security.
Typical range: $80k–$250k depending on seniority and role.
Employer benefits multiplier
Value of benefits a W-2 employer typically provides: health insurance, retirement match, PTO, bonuses, equity, payroll tax half.
Typical range: 25–40% of base salary. Use 30% as a default; 40% for FAANG/big tech with equity.
Self-employment tax delta
Extra tax burden from paying both halves of FICA + admin overhead vs. W-2.
Typical range: 10–15% effective markup on gross.
Billable hours per week
Realistic invoiceable hours after sales calls, admin, marketing, learning, and dry spells.
Typical range: 20–28 for sustainable freelancing; 35+ is unsustainable for more than a quarter.
Working weeks per year
52 minus PTO, holidays, sick days, between-client gaps, and conferences.
Typical range: 42–46 for most full-time freelancers.
Worked examples
Real scenarios with the math walked through line by line.
Senior PM leaving $180k FAANG role
Scenario: $180k base + 35% benefits multiplier, 12% SE tax delta, 25 billable hrs/wk, 44 weeks.
Math: Total comp equivalent = $180k × 1.35 = $243k. Add 12% for SE tax = $272k gross needed. Billable hours = 25 × 44 = 1,100. Rate = $272k ÷ 1,100 = $247/hr.
Outcome: Quote $275–325/hr to absorb negotiation. Anything under $200/hr is a pay cut from the FAANG job once you include lost equity and benefits.
Mid-career developer, $120k W-2
Scenario: $120k base, 28% benefits, 12% SE tax, 28 billable hrs/wk, 46 weeks.
Math: Total comp = $120k × 1.28 = $153.6k. Add SE tax markup = $172k gross. Hours = 28 × 46 = 1,288. Rate = $172k ÷ 1,288 = $134/hr.
Outcome: Floor of $135/hr, comfortable quote $155–175/hr. Below $125/hr you're earning less than the W-2 you left.
Common mistakes
Where this calculation usually goes wrong in the real world.
- Using 2,080 hours (40hr × 52wk). That's W-2 math; you'll under-bill by 40% as a freelancer.
- Forgetting the employer FICA contribution. W-2 employers pay 7.65% on top of salary you never see. As a freelancer you pay that yourself.
- Skipping the benefits multiplier. Health insurance alone is $7k–$25k/yr for individual/family coverage you used to get subsidized.
- Pricing at the floor. The floor is what you need to break even with your old job. Quote 15–25% above the floor to absorb negotiation and scope creep.
- Not re-running this annually. Salary benchmarks rise; your rate should too.
When to use this calculator
- Right before leaving a W-2 job to go freelance.
- Deciding whether to take a freelance offer that 'sounds like good money'.
- Comparing a contract-to-hire offer against a freelance project.
- Annual rate review — re-run with current target salary.
- Quoting an enterprise client when they ask 'what would this cost as a SOW'.
Glossary
W-2 equivalent salary
The total compensation (base + benefits + employer taxes) a salaried role provides. Always larger than the offer letter base.
Billable hours
Hours actually invoiced to clients. Usually 50–65% of total work hours after sales, admin, and learning.
Benefits multiplier
Ratio of fully-loaded comp to base salary. BLS estimates ~30% for civilian workers; FAANG can be 50%+ with equity.
SE tax delta
Additional 7.65% FICA (the employer half) plus higher administrative cost from running your own business.
Utilization rate
Billable hours ÷ total work hours. 60–70% is healthy; below 50% means too much unpaid work.
More questions answered
Why is the freelance rate so much higher than my hourly W-2 wage?
Three reasons: (1) you pay your own benefits, which are 25–40% of W-2 base; (2) you pay both halves of FICA and your own retirement; (3) only ~55–65% of your hours are billable, so the billable ones have to cover the unbillable ones. A $50/hr W-2 salary translates to roughly $115–140/hr freelance for the same lifestyle.
Should I quote a different rate for different clients?
Yes. Rate is anchored to value delivered, not your cost floor. Enterprise clients with bigger budgets and slower decisions should pay 1.5–2x your baseline rate; startups with tight budgets and faster iteration can sometimes justify the lower end. Never go below your floor regardless of how appealing the project is.
How do I raise my rate after years of under-charging?
Easiest: charge new clients the new rate immediately while keeping old clients at the old rate for 6–12 months, then notify with 60+ days lead time. Hardest but cleanest: re-run this calculator, send a one-line note that effective [date] all engagements move to $X/hr, and accept that 10–30% of clients will churn. The remaining clients almost always accept, and replacement clients pay the new rate from day one.
Related guides
Long-form playbooks on the same topic, written by the RevenueLab editorial team.
How to Set Your Freelance Hourly Rate (Without Underpricing Yourself)
A step-by-step framework for pricing freelance work — covering desired salary, real billable hours, business expenses, and the markup most freelancers forget.
Read the guideAgency Pricing Models: Hourly, Retainer, Project, or Performance
The four agency pricing models compared on margin, scalability, client risk, and team economics — with a framework for choosing the right one at each stage.
Read the guideMethodology last reviewed: 2026-05 by the RevenueLab editorial team.
FAQ
What's the right multiplier from salary to hourly?
Most reliable rule: (Salary × 1.3 for benefits) ÷ realistic billable hours ÷ 0.92 for tax delta. For a $110k salary at 1,200 billable hours, that's roughly $130/hour — not the $55/hour you'd get from naïve 2,080-hour division.
Should I charge the same as my old W-2 hourly equivalent?
No — that's a 40–60% pay cut once you account for benefits and self-employment tax. Treat your old W-2 total comp (salary + benefits + employer FICA) as the floor your freelance gross must exceed.
How does this change after an S-corp election?
S-corp can shave 4–6% off the SE-tax delta line, lowering the required hourly rate by ~5%. Use the LLC vs S-corp calculator linked below to model the full picture.
Should I lower my rate to win my first few clients?
Yes, but cap the discount and set an explicit end date ('intro rate for first 3 clients, 25% below standard'). Permanently low rates are sticky — clients reference what you charged them before. The riskier alternative is staying unbooked while charging top rate; the better answer is intro discounts with a clear sunset.