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A client offers you $75/hour freelance. Your current salary job pays $120,000/year. Which is better? Your first instinct is: $75 x 2,080 = $156,000, so the freelance gig wins. But that math is wrong. Here is why, and how to compare correctly.
| Benefit | Typical value | You pay as freelancer |
|---|---|---|
| Employer FICA (7.65%) | $9,180 on $120K | Yes (self-employment tax) |
| Health insurance | $6,000-$12,000/year | Yes |
| 401k match (3-6%) | $3,600-$7,200/year | No match, fund your own |
| Paid vacation (2-4 weeks) | $4,600-$9,200/year | No income when off |
| Paid sick days (5-10) | $2,300-$4,600/year | No income when sick |
| Equipment/software | $1,000-$5,000/year | Yes |
| Training/conferences | $1,000-$3,000/year | Yes, if you choose |
Total hidden value of a $120,000 salary: roughly $28,000-$50,000 in benefits. That means $120K salary is equivalent to $148,000-$170,000 in total compensation.
Start with the base conversion, then factor in benefits.
Open Salary Converter →Minimum freelance rate = (Target salary + benefits cost + taxes + expenses) / billable hours per year
Example: You want the equivalent of a $90,000 salary.
| Component | Annual cost |
|---|---|
| Target salary | $90,000 |
| Self-employment tax (15.3% of ~92.35%) | $12,700 |
| Health insurance | $8,000 |
| Retirement savings (10%) | $9,000 |
| Business expenses | $3,000 |
| Vacation + sick (4 weeks off) | $0 income |
| Total needed | $122,700 |
| Billable hours (30h/wk x 48 wk) | 1,440 hours |
| Required hourly rate | $85.21/hour |
To match a $90,000 salary, you need to charge about $85/hour and actually bill 30 hours per week for 48 weeks. If you bill fewer hours or take more time off, the rate goes up.
A quick estimate: take the hourly equivalent of the salary you want and multiply by 1.5. Want the equivalent of $40/hour ($83,200 salary)? Charge $60/hour freelance. Want the equivalent of $60/hour ($124,800 salary)? Charge $90/hour.
This rough multiplier accounts for self-employment tax, basic insurance, and some downtime. It underestimates if you want strong retirement savings or take lots of time off.
Salaried employees get paid for 40 hours of work. Freelancers work 40 hours but only bill for 25-35 of them. The rest goes to:
If you bill 75% of your time (30 of 40 hours), your effective income per working hour is 25% lower than your billing rate. At $80/hour billed, your effective rate across all working hours is $60.
Convert your target salary to see the baseline hourly rate.
Open Salary Converter →