How the Contractor Rate Calculator works
Estimate an hourly contractor rate from desired income. Adjust the inputs above, then use the calculate button to generate a fresh estimate based on the numbers you entered.
The result is designed to give you a quick planning number, plus a short breakdown of the major figures behind it. You can reset the form at any time and try a different scenario.
When to use this calculator
Use this contractor rate calculator to estimate the hourly rate needed to reach a target take-home income. It is useful when setting freelance or consulting rates that must cover taxes, expenses and non-billable time.
Formula
Hourly rate = (target income / (1 - tax reserve rate) + expenses) / billable hours
- Target take-home income is the desired income after tax reserve.
- Expenses are annual business costs that need to be covered.
- Tax reserve rate grosses up the needed income.
- Billable hours are the paid client hours expected per year.
Worked example
For a $90,000 target take-home income, $15,000 expenses, 30% tax reserve and 1,600 billable hours, the calculator estimates the hourly rate needed.
Common mistakes
- Basing rates on 2,080 work hours when many hours are non-billable.
- Forgetting business expenses and unpaid time off.
- Underpricing to match employee wages without accounting for benefits and risk.
FAQs
Why use billable hours?
Contractors often spend time on admin, sales and unpaid work, so not every work hour is billable.
Should benefits be included?
Yes. Add health insurance, retirement savings or paid-time-off equivalents to expenses or target income.
Is this rate before tax?
Yes. It estimates the client billing rate needed before tax reserve and expenses.