Why a $80k salary ≠ $40/hour
The naive conversion — salary ÷ 2080 hours — badly undervalues contractors. It ignores three things contractors absorb themselves: benefits (health insurance, retirement match, paid leave — commonly $8–15k/year), unpaid gaps (5–8 weeks between contracts), and extra taxes (in the US, the employer half of Social Security and Medicare, about 7.65%, plus business expenses).
This converter grosses the salary up for all three, then divides by the hours you'll actually work, giving the hourly rate a contract needs to leave you as well off as the salary. A common result: an $80,000 salary needs roughly $55–65/hour on contract, not $38.
Using it the other way
Enter the numbers for a contract you've been offered and compare the output to your salary — if the equivalent salary comes out lower than your current one, you're being offered a pay cut for more risk.
How this converter works
Enter the salary you are comparing against, the weeks you expect to go unpaid between contracts and holidays, your realistic weekly hours, the yearly cost of benefits you will now buy yourself, and the extra contractor tax burden — and the converter returns the hourly rate that leaves you as well off contracting. It grosses the salary up for benefits and extra tax first, then divides by the hours you will actually work rather than the 2,080-hour employee year.
Formula: Contract hourly rate = (salary + self-funded benefits) × (1 + extra contractor tax burden) ÷ ((52 − weeks off) × hours per week).
Worked example: a $100,000 salary
A product manager leaves a $100,000 role, prices $12,000 of self-funded benefits, assumes a 10% extra contractor tax burden, and expects 6 unpaid weeks with 40-hour weeks:
- Gross-up: ($100,000 + $12,000) × 1.10 = $123,200
- Working hours: (52 − 6) × 40 = 1,840 hours
- Rate: $123,200 ÷ 1,840 = $66.96/hour
The naive conversion gives $100,000 ÷ 2,080 = $48.08 an hour — the $18.88 gap is benefits, gaps, and extra tax made visible. Quote below $66.96 and the move from employment is a pay cut carrying extra risk; many contractors then add a 10–20% risk premium on top, which would put this conversion near $74–80 an hour.
How unpaid time moves the same $100,000 conversion
Holding the $123,200 grossed-up figure and 40-hour weeks, only the unpaid weeks change:
| Unpaid weeks per year | Working hours | Required rate |
|---|---|---|
| 4 | 1,920 | $64.17/hr |
| 6 | 1,840 | $66.96/hr |
| 8 | 1,760 | $70.00/hr |
Every two extra unpaid weeks add roughly $3 an hour on this salary — be pessimistic about gaps rather than optimistic, since the pipeline always looks fuller than it is.
What this leaves out
Three approximations to treat as starting points. Benefits valuation is approximate: the single benefits field bundles health insurance, retirement match, paid leave, and perks — price each from real quotes (an exchange health plan plus a former employer's 401(k) match is often $10,000–15,000 alone) rather than guessing a round number. PTO assumptions are stated, not hidden: the weeks-off input does the work that paid leave does silently in employment — it must cover holidays, sick days, and gaps between contracts together, so 5–8 weeks is realistic where 2–3 would flatter the result. There is no risk knob: the formula equalizes pay but not security, so add your own 10–20% premium for missing notice periods, severance, and pipeline certainty — and fold software, hardware, insurance, and invoicing overhead into the benefits figure, since no employer subsidizes them anymore.
Sources: the extra-tax input reflects the employer half of payroll tax (7.65%) that contractors pay via the 15.3% self-employment tax — see the IRS self-employment tax rules for the current figures.
Every figure above is hand-checked: the worked example was recomputed independently of the calculator code, and tax figures track 2026 IRS limits. How we check every page.
Related calculators
Run the conversion in both directions and check it against the market: the hourly rate calculator builds a rate from your own income target instead of a salary, the day rate calculator converts an hourly figure into a daily quote, and freelance rates by country shows what the same role pays in different markets. The worked $80k example and the benefits and gap adjustments are in the salary to contract rate guide. To see what any hourly figure means per year, browse the salary charts — for example $30 an hour is $62,400 a year, $50 an hour is $104,000 a year, and $100 an hour is $208,000 a year.