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Business & Tax
Comparing a freelance rate to a salary is the wrong comparison. Total compensation against freelance revenue after taxes, expenses, and unbilled time is the right one.
By FreeCalculators Editorial · Published 2026-09-01 · Updated 2026-09-04 · 4 min read · 925 words
The honest comparison is not salary against hourly rate. It is total employee compensation — salary plus employer retirement match, plus the employer share of health premiums, plus paid time off, plus the 7.65% payroll tax an employer pays on your behalf — against freelance revenue after self-employment tax, business expenses, and the hours you cannot bill. Run that way, most freelance moves need a 35% to 50% uplift in headline income to stand still.
Payslip salary understates employer cost by a wide margin. The gap is the amount a freelancer has to replace out of revenue.
| Component | Employee at $85,000 | Freelance equivalent |
|---|---|---|
| Base pay | $85,000 | Revenue after expenses |
| Employer payroll tax at 7.65% | Paid by employer | Paid by you as part of 15.3% |
| Retirement match at 4% | $3,400 | Self-funded from revenue |
| Employer share of health premium | $9,600 | Self-funded from revenue |
| Paid time off, 20 days | Paid | Unbilled and unpaid |
| Equipment, software, insurance | Provided | $12,000 of business expense |
| Total value | $98,000 plus PTO | Requires about $116,750 of net revenue |
Matching a $85,000 package as a freelancer (2026)
Employee total compensation: $85,000 + $3,400 + $9,600 = $98,000 Extra payroll tax burden as self-employed: about 7.65% of net = $6,750 Business expenses to replace employer-provided tools: $12,000 Required freelance net revenue: $98,000 + $6,750 + $12,000 = $116,750 Realistic billable hours at 62.5% utilisation: 1,300 Break-even billing rate: $116,750 / 1,300 = $89.81 per hour Employee hourly equivalent: $85,000 / 2,080 = $40.87 Required multiple: 2.2x the employee hourly wage
The 2.2x multiple is the floor, and it assumes 1,300 billable hours are actually sold. At 1,000 billable hours the required rate rises to $116.75, a 30% increase driven entirely by utilisation. Rate and utilisation multiply, which is why a high rate with a thin pipeline pays worse than a moderate rate with a full one.
Calculate the break-even rate, then ask whether the market pays it and whether you can sell enough hours at it. If the answer to either is no, the gap is the cost of the move, and it should be a deliberate purchase of flexibility rather than a surprise. If the answer is yes with margin to spare, the remaining question is cash: enough buffer to survive the ramp and the payment terms.
Re-run the comparison after twelve months using actual billable hours and actual expenses. Almost everyone overestimates the first and underestimates the second.
One more adjustment separates a good decision from a guess. Employment income is smoothed by an employer across the year, while freelance revenue arrives in lumps that rarely match the months when tax instalments and insurance premiums fall due. Model the cash calendar alongside the annual total, because the annual figure can be comfortable while a single quarter is not.
Comprehensive Guide
Read our business and tax guide for margins, payroll, and tax planning.
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How this guide was created
This guide was written and reviewed by FreeCalculators Editorial, drawing on published formulas, official government sources, and real calculator outputs from our 4 calculators in this category. Every claim is sourced; every formula is auditable. Read our review policy.