Translating Your Salary to Freelance Rates

The transition from a full-time employee to a freelancer is an exciting leap, but it comes with a steep learning curve—especially when it comes to pricing your services. Many new freelancers make the critical error of taking their corporate salary, dividing it by 2,080 (the number of working hours in a year), and using that as their freelance rate.

If you do this, you will effectively take a massive pay cut. Here is exactly how to translate your corporate salary into a freelance rate that actually pays your bills.

The "Rule of Thirds" for Freelancers

When you are an employee, your salary is only part of your total compensation. Your employer also pays for your payroll taxes, health insurance, paid time off, office space, and equipment. When you become a freelancer, all of those costs shift to you.

A good rule of thumb is the "Rule of Thirds." Your freelance income needs to be split three ways:

1. One third for taxes: You must set aside roughly 30% of your income to cover federal, state, and self-employment taxes.
2. One third for business expenses: This covers software, marketing, insurance, legal fees, internet, and retirement savings.
3. One third for your take-home pay: This is the money you actually use to pay your rent, buy groceries, and live your life.

Therefore, if you want your take-home pay to match your old $60,000 salary, your freelance business actually needs to generate closer to $180,000 in gross revenue. While this sounds intimidating, it highlights why freelance rates must be significantly higher than employee wages.

Accounting for Unbillable Time

The second major factor is time. As an employee, you are paid for 40 hours a week, even if you spend 10 of those hours in pointless meetings or chatting by the water cooler. As a freelancer, you only get paid when you are actively working on a client project.

You will spend a significant amount of your week on unbillable administrative tasks: marketing, pitching, invoicing, accounting, and answering emails. A safe estimate is that you will only bill for about 25 hours a week, 46 weeks a year (accounting for vacation and sick time). That equals 1,150 billable hours per year.

The Formula

To find your rate, divide your target gross revenue by your estimated billable hours.

If your goal is to generate $120,000 in gross revenue to cover a decent living wage, taxes, and expenses, you divide $120,000 by 1,150. Your freelance rate should be roughly $104 per hour.

This is why a $100/hour freelance rate is quite standard for experienced professionals, even if it sounds incredibly high to someone used to making a $60,000 salary ($28/hour). If you need help crunching the numbers for your specific situation, check out our free Freelance Hourly Rate Calculator to ensure you are pricing your services for long-term success.