Why the same hourly rate gives different results
Four things separate the two situations:
- Paid time. An employee is paid for holidays and sick leave. A freelancer is paid only for billable hours, and does not bill every hour worked.
- Social contributions. In many countries an employer pays part of the payroll tax on an employee’s behalf. A self-employed person usually pays the whole amount themselves, under different rules.
- Benefits. Health cover, pension contributions and similar benefits have a real value that a freelancer must fund alone.
- Business costs. Software, equipment, insurance and accounting are normally paid by the employer, but by the freelancer when self-employed.
Worked example
US model with the default inputs: 24 an hour, 40 paid hours a week for 52 paid weeks, 8,000 of employer benefits, and a freelancer who bills 30 hours a week for 46 weeks with 5,000 of expenses. Income tax is a 22% illustrative rate.
Employee gross 24 x 40 x 52 = 49,920.00 Payroll (7.65%) - 3,818.88 Income tax (22%) - 10,982.40 Net take-home 35,118.72 Plus benefits + 8,000.00 To match 43,118.72 Freelance hours 30 x 46 = 1,380 Revenue needed 71,972.21 Rate needed 71,972.21 / 1,380 = 52.15 per hour Premium over 24 an hour +117.3%
Most of that gap comes from hours alone: 2,080 paid hours against 1,380 billable ones. Change the billable hours, weeks, benefits and expenses to see how each one moves the result.
Where the tax figures come from
The tool uses flat rates on income above a tax-free amount, and every figure is editable. The presets were checked against official sources on 2026-11-08:
- United States: self-employment tax of 15.3% (12.4% Social Security and 2.9% Medicare) from the IRS, with the employer-equivalent half deductible for income tax; employee share of 6.2% plus 1.45% from IRS Topic 751. The 22% income tax rate is an example, not your rate.
- United Kingdom, 2026-27, England, basic rate only: a tax-free amount of 12,570 and 20% up to 50,270 from GOV.UK income tax rates; employee National Insurance of 8% from GOV.UK contribution rates; Class 4 of 6% on profits from GOV.UK self-employed rates.
What it leaves out: the Social Security wage cap, state and regional taxes, higher-rate bands, student loans, deductions, credits, company structures and anything that changes each year. Use Custom mode for any other country and enter your own rates. This is an illustration, not tax advice; an accountant should check any real decision.
Frequently asked questions
Why is the freelance premium so large?
Because the freelancer must earn the same take-home plus benefits from fewer paid hours, while covering expenses and the full self-employed contributions. The worked example shows the effect of each input.
Why do I enter paid weeks and billable weeks separately?
An employee is paid through holidays and sick leave, usually all 52 weeks, while a freelancer is paid only for billable weeks. Using one number for both would hide a major part of the difference.
Does it work outside the US and UK?
Yes, through Custom mode: set the tax-free amount, income tax rate and both contribution rates to your country's figures. The presets only cover the US and the UK basic-rate case.
Does it cover IR35 or other contractor rules?
No. Rules such as the UK's off-payroll working rules, or contractor status tests in other countries, change the comparison completely. Ask a contractor accountant.
What should I enter for employer benefits?
Estimate the yearly value of what your employer provides: health cover, pension contributions, life insurance and similar items. Use your own documents rather than a typical figure, because the amounts vary widely.