Setting your freelance hourly rate is the single most important financial decision you will make as an independent worker, and most people get it wrong by quietly copying the hourly figure from their old salary. That number almost always leaves you underpaid, because a salaried job hides the cost of taxes, benefits, downtime, and the many unpaid hours you will spend running your own business. This guide gives you a simple, repeatable method to arrive at a rate that genuinely covers your costs and pays you a real profit.
Why your salary hourly rate is a trap
It is tempting to take a £50,000 salary, divide it by roughly 2,080 working hours a year, and land on about £24 an hour. The problem is that this figure assumes every working hour is billable and that someone else is quietly paying for your holidays, sick days, pension, equipment, and payroll taxes. As a freelancer, all of those costs land on you, and a large share of your week disappears into work you cannot invoice. Charging your old salary rate is a fast route to earning far less than you did as an employee while carrying much more risk.
Step one: start from your target income
Work backwards from the annual income you actually want to take home. Be honest and realistic here, because this number anchors everything else. If you were comfortable on a certain salary, use that as your starting point rather than a fantasy figure, and remember that as a freelancer you are also your own boss, so a modest raise over your old pay is entirely reasonable given the extra responsibility you are taking on.
Step two: add self-employment tax and expenses
Employees rarely see the full tax picture because employers withhold and match part of it. Freelancers pay self-employment tax and cover the employer share themselves, so you need to build this into the rate rather than absorbing it later. On top of tax, list your real business costs: software subscriptions, hardware, insurance, an accountant, a co-working desk, professional development, and pension contributions you now fund alone. Total these annual expenses and add them to your target income, because your rate has to cover both before you have earned a penny of profit.
Step three: count your real billable hours
This is the step almost everyone skips, and it is where salary-based rates fall apart. A year has around 2,080 standard working hours, but you will not bill anywhere near that. Subtract holidays, sick days, and public holidays, then remove the enormous block of time you spend on unpaid work: marketing, proposals, invoicing, admin, client calls that go nowhere, and the inevitable gaps between contracts. Most full-time freelancers realistically bill somewhere between 1,000 and 1,300 hours a year. Using an honest billable-hours figure is what separates a sustainable rate from a hopeful one.
Step four: do the simple calculation
Now the maths is easy. Add your target take-home income, your tax burden, and your annual expenses together to get the total revenue you need. Divide that total by your realistic billable hours, and the result is your minimum hourly rate. For example, if you need £65,000 in total revenue to cover income, tax, and costs, and you can bill 1,200 hours, your rate is roughly £54 an hour — more than double the naive salary conversion. That gap is exactly why so many new freelancers feel like they are working harder for less.
Step five: add a profit and safety margin
The figure above merely keeps you afloat. A healthy business needs profit for lean months, reinvestment, and growth, so add a margin on top — often 10 to 20 percent. This buffer absorbs late payers, a quiet quarter, or an unexpected expense without pushing you into debt. Building profit into the rate from the start is far easier than trying to raise prices under financial pressure later.
From hourly rate to smarter pricing
An accurate hourly rate is the foundation, not the final answer. Once you know your true cost of an hour, you can package your work into project or value-based pricing that rewards your speed and expertise rather than penalising it. Clients often prefer a clear project price, and it protects you from being punished for becoming more efficient. Keep the hourly rate as your internal benchmark, and use it to sanity-check every quote you send.
Review your rate every year
Your rate is not set in stone. As your skills deepen, your reputation grows, and your costs shift, revisit the calculation at least once a year. Raising rates for new clients, and periodically for existing ones, keeps your income in line with the value you deliver. Freelancers who never revisit their numbers slowly fall behind, while those who treat pricing as a living decision build genuinely profitable businesses. If you want to compare your freelance income against a traditional role, our guide to freelance and contractor income walks through the full W-2 comparison.
Frequently asked questions
How do I set my freelance hourly rate?
Start from your target annual income, add taxes, expenses and profit, then divide by the number of billable hours you can realistically work in a year.
Why can't I just charge my old salary hourly rate?
Because freelancers pay self-employment tax, cover their own benefits and only bill a fraction of their working hours, so a raw salary-to-hourly conversion leaves you underpaid.
How many billable hours can a freelancer expect?
Most full-time freelancers bill roughly 1,000 to 1,300 hours a year once you subtract admin, marketing, holidays and gaps between clients.
Should I charge hourly or per project?
Use an accurate hourly rate as the foundation, then package it into project or value-based pricing once you understand how long your work actually takes.