Freelancers: your real hourly rate is not what you charge
Unbilled hours, self-employment tax, gear, downtime: how to compute the hourly rate you actually earn — and set your prices accordingly.
A freelancer charging $60/hour often earns less per worked hour than a salaried employee at $35/hour. The difference hides in everything you don't bill.
The invisible hours
For every billed hour, most independents spend real time on prospecting, proposals, invoicing, accounting, and support. A common pattern is 60–70% billable utilization at best: a 40-hour week yields 24–28 billable hours. Your $60 just became $38–42 per worked hour.
The costs employees never see
- Self-employment tax: you pay both halves of Social Security and Medicare (≈15.3% in the US up to the wage cap).
- Health insurance and retirement: fully out of pocket, no employer match.
- No paid time off: vacation, sick days and public holidays are unbilled by definition — plan for 5–7 weeks of zero revenue.
- Gear, software, coworking, insurance: hundreds per month for many trades.
Compute your real rate in three steps
- Realistic billable hours per year: weeks worked × billable hours per week. Example: 46 weeks × 25 h = 1,150 h.
- Target net income + all costs + taxes = required gross revenue.
- Divide. Required revenue ÷ billable hours = your floor rate. Anything below it is a subsidy to your clients.
Sanity-check against employment
Convert your target income with the hourly to salary calculator to see what an employer would pay for the equivalent: as a rough rule, a sustainable freelance rate is 1.5× to 2× the employee hourly equivalent for the same role. Charging $60/hour to net what a $45k job pays is not a premium — it's parity with extra risk.