The most popular freelance pricing question in every developer Discord goes something like this: "I made $130,000 base at my last job. What should I charge per hour as a contractor?" Someone in the channel divides $130,000 by 2,080 hours, lands at $62.50, suggests rounding up to $75 to account for "freelance overhead," and the conversation moves on.
That $75 an hour rate is almost certainly too low, often by a factor that erases the entire reason the person went freelance in the first place. The math is wrong because 2,080 hours is the wrong denominator, and "freelance overhead" is the wrong way to think about what changes when you stop being a W-2 employee.
What 2,080 hours assumes
Two thousand and eighty hours is 40 hours a week, 52 weeks a year. It is what an employer pays a salaried worker for, in the sense that the salary is the price of being available for that many hours per year (with some adjustments for PTO).
The problem with using 2,080 as your freelance billable-hours number:
- You will not bill every hour you work. Sales calls, proposal writing, client onboarding, invoicing, follow-up on late payments, bookkeeping, taxes, professional development, and tooling all happen on unbilled time. Realistic freelance billable ratios are 55% to 70% of work hours, not 100%.
- You take time off. Four weeks of vacation plus two weeks of sick or buffer time means 46 working weeks per year, not 52.
- Slow weeks happen. Even with a strong pipeline, almost no freelance developer hits 40 billable hours in every working week. Sometimes a project ends Friday and the next one starts in nine days.
A more honest billable-hours number for a full-time freelance developer is 1,150 to 1,400 per year. Plug $130,000 divided by 1,250 and you get $104 an hour, not $62.50.
That correction alone is a 65% gap between the naive number and the more honest one. And it does not yet address the bigger issue.
What the salary was actually paying for
The headline salary number on an offer letter is not the total cost of employing you. It is roughly 70% to 75% of the total cost. The other 25% to 30% is invisible to most employees because it never shows up on a pay stub.
Add back, item by item:
- Employer-side FICA. 7.65% of wages, paid on top of the salary. As a self-employed person, you pay both halves through self-employment tax at the full 15.3% rate.
- Health insurance. A typical employer-sponsored family plan costs the employer $1,500 to $2,000 a month per employee. You pay only a fraction of that as your share, which is why your individual contribution feels manageable.
- 401(k) match. A 4% to 6% employer match on $130,000 is $5,200 to $7,800 a year of compensation you never thought about.
- Paid time off. Three weeks of vacation plus holidays plus sick leave is a meaningful chunk of compensation.
- Disability and life insurance. Often employer-paid as group policies, harder to buy as individuals. The Social Security Administration publishes statistics on disability claim rates that are sobering for anyone who thinks they can skip coverage.
- Training, conferences, equipment. A laptop refresh, a monitor, conference tickets, online learning subscriptions, sometimes a home office stipend. The Small Business Administration covers what self-employed people can deduct as business expenses, which is most of these.
Total true compensation on a $130,000 base for an employee with decent benefits often lands at $170,000 to $185,000 of cost to the employer. That is the number you need to replace as a freelancer, not the headline salary.
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The corrected math
Let's redo the calculation with honest inputs:
-
Take-home target: what you actually want to deposit each year. Call it $90,000 for a $130,000 W-2 equivalent (after federal income tax, FICA, and state income tax). This is your
T. -
Benefits pile: marketplace health insurance ($1,200/month family = $14,400/year), retirement contribution ($15,000), disability insurance ($1,500). Total
N = $30,900. -
Business expenses: software ($2,400), accountant ($800), portion of internet and phone ($1,200), equipment depreciation ($1,500), professional liability insurance ($600), continuing education ($1,000). Total
B = $7,500. - Effective tax rate on profit: ~28% federal + self-employment combined.
- Billable hours: 1,250 per year.
Calculation:
- Profit after tax must cover
T + N = $90,000 + $30,900 = $120,900 - Profit before tax =
$120,900 / 0.72 = $167,917 - Gross revenue = profit + business expenses =
$167,917 + $7,500 = $175,417 - Hourly rate floor =
$175,417 / 1,250 = $140.33
Not $62.50. Not $75. One hundred forty dollars an hour, just to break even with what the $130,000 W-2 job was delivering. The quoting rate (with a 15% to 25% cushion for slow months and risk) is closer to $160 to $175 an hour.
Why "freelance overhead" is the wrong framing
The instinct to "add overhead" to a salary-divided hourly rate is roughly correct but underpowered. People who say "tack on 30% for freelance overhead" are noticing that something is missing. What they miss is the scale of "something."
Health insurance for a family is $14,400 a year, not $4,000. Retirement contributions worth replacing a 401(k) match are $5,000 to $15,000, not $2,000. Self-employment tax on $150,000 of profit is $20,000+, not "a bit of FICA." Add them up honestly and the overhead is 60% to 100% of headline salary, not 30%.
You will find a slightly more permissive calculation in the Freelancers Union annual rate guidance, which builds rate floors from regional cost-of-living data. The structure is the same as above; the numbers are just expressed as multipliers (1.6x to 2x salary-equivalent rate) rather than dollar-by-dollar inputs.
How to skip the manual math
If running the calculation by hand makes your eyes glaze over, the EvvyTools free freelance rate calculator by EvvyTools accepts the same inputs and returns the floor in one screen. Punch in your take-home target, billable hours estimate, business expenses, and tax assumption; it returns the floor plus a breakdown of where each dollar of gross revenue goes.
The accompanying guide on setting a freelance hourly rate that pays what you need walks through the full methodology in case you want to understand the calculation before trusting any tool.
What this means for negotiating
The practical reason to know your true floor is so you can negotiate from real numbers rather than feelings.
When a client offers $90 an hour and asks you to come down, you can either accept (knowing it does not cover your floor and you'll need to take on more clients to make it up), counter with a higher number and a defensible breakdown, or decline. All three are real choices. None of them work if you don't know your floor.
Similarly, when a recruiter offers a $140,000 W-2 role with comparable benefits, you can do the reverse calculation: what hourly equivalent does $140,000 plus benefits actually pay? If it works out to $160 an hour fully loaded and your current freelance rate is $135 an hour and you have eight clients to chase invoices from, the offer might actually be a raise. Or not. Either way, you can decide on numbers instead of vibes.
The takeaway
Salary divided by 2,080 is not your freelance rate. It is not even close to your freelance rate. The actual rate is built from the take-home you want, the taxes that will hit, the expenses your business carries, the benefits an employer used to pay for, and the realistic billable hours you can deliver.
Run those numbers before quoting your next project. Charge above the floor. Adjust annually. The math gets easier as you do it more often, and you stop having the conversation in the Discord where someone is about to take $75 an hour for work that should cost a client three times that.
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