You tell a recruiter you charge 110 dollars an hour. They tell you a salaried role at the same company pays 140K plus benefits. You do the quick math: 140,000 divided by 2,080 is about 67 dollars an hour. You assume you are making roughly 65 percent more than the salaried role.
In some cases that assumption is right. In many cases it is wrong by a meaningful amount, and the gap shows up as surprise tax bills, unfunded health insurance premiums, and a slow realization that your "real" hourly rate is closer to 60 dollars than 110.
This is the calculation worth running before the next time you set a new rate or evaluate a competing salary offer.
Photo by Sarra Hammouda on Pexels
Step 1: Find Your Actual Billable Utilization
The first adjustment is the most consequential. Your billable hours are not your working hours.
Track a representative four-week period. Log every hour you actually invoiced versus every hour you actually worked. Include the time spent on sales, proposals, scope clarification, invoicing, chasing payments, fixing bugs you absorbed instead of billing for, internal admin, learning to keep current, and the hour every Friday you spend on bookkeeping.
A realistic billable utilization for an experienced solo developer is 65 to 75 percent of working hours. If you work 45 hours a week and bill 32, that is roughly 71 percent utilization, which is reasonable. If you work 50 hours a week and bill 30, that is 60 percent, which is low and worth investigating: there is probably a category of work in your sales or admin pipeline you can optimize.
Across a 50-week working year (52 weeks minus two off), 1,600 hours of billable work is high and 1,200 is low. Most full-time solo developers land between 1,300 and 1,500.
At 110 dollars per hour and 1,400 billable hours, your annual gross is 154,000 dollars. Not 228,800.
Step 2: Subtract Self-Employment Tax
The IRS collects 15.3 percent in combined Social Security and Medicare tax on self-employment income. W-2 employees pay 7.65 percent and their employer pays the other half. Freelancers pay both.
The official IRS calculation applies the 15.3 percent rate to 92.35 percent of net earnings (the 0.9235 factor accounts for the half of self-employment tax that is deductible from the base before computing the tax itself).
On 154,000 dollars of gross revenue, before business expenses, the self-employment tax burden is approximately:
154,000 x 0.9235 x 0.153 = 21,757 dollars
After deducting half of that as an income-tax adjustment, the effective hit to your net income is closer to 20,000. Either way, it is a real cost the salaried developer never sees on their pay stub.
Step 3: Subtract Health Insurance
If you are buying coverage through the Healthcare.gov marketplace without subsidy, a mid-tier silver-or-gold individual plan commonly costs 8,000 to 12,000 dollars per year as of recent open enrollment data. Family coverage runs significantly higher.
The salaried role's employer is paying 7,000 to 18,000 dollars of comparable coverage on the employee's behalf, depending on whether single or family. Your freelance equivalent has to come from your own gross.
Use 10,000 for an individual plan. The health insurance premium is deductible above-the-line for self-employed people, which partially offsets the cost but does not eliminate it.
Step 4: Subtract Business Expenses
This is where freelancers recover some ground. Legitimate business expenses come off the top of gross income before income tax is computed. The Small Business Administration lists the categories that typically qualify, and for developers that usually includes:
- Software subscriptions (IDEs, GitHub, hosting, API services)
- Hardware (laptops, monitors, peripherals, depreciated appropriately)
- Books, courses, conferences
- Home office (a portion of rent or mortgage, utilities, internet)
- Professional services (accountant, legal review of contracts)
- Business-use portion of phone, internet, and travel
A realistic annual total for a full-time freelance developer is 8,000 to 15,000 dollars. At a combined marginal tax rate of around 30 percent, 12,000 in deductions saves about 3,600 in tax.
Step 5: Compute the Effective Hourly Rate
Putting it together for the 110-an-hour scenario:
- Gross billable revenue: 154,000
- Self-employment tax: -21,000
- Self-funded health insurance: -10,000
- Business expenses (deductible from income tax base, but cash out the door): -12,000
- Net cash income before federal income tax: 111,000
Divide that 111,000 by the working hours, not the billable hours, to get your real effective hourly rate. If you worked 1,950 hours that year (45 hours x 43 working weeks, since you also took some sick days and didn't bill at 50 weeks), the effective rate is 56.92 an hour.
That is the figure to compare against a salary's hourly equivalent. Run the same exercise on the 140K salary side: add the employer payroll tax (+10,710), add the benefits stack (commonly 22,000 to 28,000 for a single mid-career employee), and divide by the working hours the role actually requires.
A 140K salary at 47 hours a week across 50 working weeks (2,350 hours) with a 25,000 dollar benefits stack and 10,710 of employer-paid payroll tax delivers roughly 175,710 in real comparable compensation, divided by 2,350 hours, equals about 74.77 an hour in real value.
The salaried developer at this comparison is making roughly 75 dollars an hour in real value. The freelance developer at 110 dollars per billed hour is making roughly 57 dollars an hour in real net value. The salaried role is paying more, despite the freelance rate looking nearly double on paper.
What Changes the Picture
The freelance side wins when any of the following are true:
- Billable utilization above 1,600 hours per year (closer to 75 percent of working time spent on billable work).
- Effective business expense rate above 15,000 dollars per year, used genuinely on things that improve the business.
- Lower-cost or family-coverage-irrelevant health insurance situation (spouse's plan, military veteran benefits, etc.).
- Strong negotiating power that supports rate increases as utilization rises.
The salary side wins when realistic billable utilization is below 1,400 hours per year, when family health insurance is needed, or when benefits and predictable income matter more than schedule control.
A 110 dollar an hour freelance arrangement starts to genuinely beat a 140K salary at around 1,650 billable hours per year for an individual on the employer's single-coverage health plan. Below that threshold, the salary is the better economic deal, regardless of how much higher the rate looks on paper.
Photo by Jakub Zerdzicki on Pexels
A Tool to Skip the Spreadsheet
The Salary & Hourly Converter at EvvyTools handles the basic bidirectional conversion with configurable hours per week, weeks per year, and overtime inputs, and shows a side-by-side comparison view useful for evaluating two offers against each other. Use it as a quick first pass before running the full adjustment workflow above on the offers worth taking seriously.
For the longer explanation of each adjustment with full worked examples, the longer guide How to Honestly Compare a Salary Offer to a Freelance Hourly Rate covers the salary-to-freelance comparison from the salaried perspective.
The math is not complicated. The harder part is being honest about which numbers actually describe your situation versus which numbers describe the best version of your situation. Freelance comparisons fail more often from optimistic utilization assumptions than from miscalculated tax rates.
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