How to Calculate Your Freelance Hourly Rate (The Right Way)

If you're setting your freelance rate by dividing your old salary by 2,000 hours, you're almost certainly undercharging. That math ignores taxes, business expenses, time off, and — critically — the hours you spend on work that doesn't get invoiced.

The formula most people get wrong

The naive approach:

Desired salary ÷ 2,080 hours = hourly rate

The problem? You don't keep your gross income. And you don't bill every hour you work.

What to actually include

1. Take-home income (not gross)

Start with how much you want in your pocket after taxes. If you want $75,000 to live on, that's your starting number — not a $75,000 gross salary equivalent.

2. Business expenses

Software subscriptions, equipment, insurance, coworking, accounting — these come out of your revenue before you pay yourself. A typical freelancer spends $8,000–$15,000/year on business costs.

3. Taxes

Self-employment tax alone is 15.3% in the US, before income tax. A combined 25–35% effective rate is common. You need to gross up your pre-tax number to account for this.

4. Non-billable time

You will spend time on proposals, admin, invoicing, marketing, and client communication. Most freelancers are billable only 50–70% of their work hours. If you work 40 hours but only bill 24, your rate needs to reflect that.

5. Time off

Sick days, holidays, vacation — you're not billing 52 weeks a year. Subtract the weeks you won't work from your available hours.

The real formula

(Take-home + Expenses) ÷ (1 - Tax Rate) ÷ Billable Hours = Hourly Rate

Try it yourself

Use our Freelance Rate Calculator to slide through each variable and see your rate update in real time — with a full breakdown of where the number comes from.

Common mistakes

• Using gross salary as your target — you'll come up short after taxes
• Assuming 100% billable time — even busy freelancers rarely bill more than 70%
• Forgetting annual expenses — that $99/month tool stack adds up
• Not accounting for slow months — your rate should cover lean periods too

Set your rate with the full picture, not just the number that sounds good in a proposal.