Why does a contractor rate have to be higher than a salary?
As an employee, a long list of costs sits with your employer: their share of social contributions, paid holiday, sick leave, pension, insurance, equipment, and the risk of a quiet quarter. As a contractor, all of it moves to you, along with your own bookkeeping.
That is why matching the headline salary is a real reduction in what you take home, even though the gross number looks identical.
How do you work out the number?
Build it up in steps from the salary you would have accepted. Use your own country's figures; the percentages below are only illustrative placeholders to show the shape of the calculation.
- Start with the annual salary you would accept as an employee.
- Add employer-side social contributions, which in many countries run between 10% and 30%.
- Add paid leave and public holidays you now fund yourself: roughly 5 to 6 weeks, about 11% of a year.
- Add health insurance, pension contributions, and sick-day cover you now buy privately.
- Add equipment and software amortised over three years, plus any coworking cost.
- Add an accountancy and admin allowance for bookkeeping and filings.
- Add a buffer for gaps between contracts, typically 5% to 10%.
- Divide by your billable days, which is usually around 220 a year rather than 260.
What does that look like on a real number?
Here is the shape of the calculation on a target of 100,000 a year in your own currency. Replace each percentage with your local figures; the point is the structure, not these numbers.
| Step | Effect | Running total |
|---|---|---|
| Target employee salary | Starting point | 100,000 |
| Employer social contributions | +20% | 120,000 |
| Paid leave and holidays | +11% | 133,200 |
| Insurance and pension | +6% | 141,200 |
| Equipment, software, coworking | +3% | 145,400 |
| Accountancy and admin | +2% | 148,300 |
| Gap and downtime buffer | +7% | 158,700 |
| Day rate at 220 billable days | Divide | about 720 per day |
How do you protect the rate from currency and fees?
A rate agreed in a foreign currency is a rate that moves every month. A 5% swing wipes out a raise you spent a quarter negotiating, and transfer fees and poor exchange rates take another slice on top.
- Decide who carries exchange rate movement and write it into the contract.
- Invoice in a currency you actually spend in where the client allows it.
- Use a transfer provider with a visible mid-market rate rather than a bank default.
- Agree payment terms explicitly, and add a late payment clause; net 15 or net 30 is normal.
- Review the rate annually against inflation in your own country, not the client's.
How do you present the number without a fight?
Do not present a percentage uplift, present a total. Companies compare your rate to their budget, not to your arithmetic. Keep the reasoning available but lead with the figure.
- "My rate for this scope is X per month, invoiced monthly, net 15."
- "That is the contractor equivalent of the salary band you mentioned, once leave, insurance, and contributions are included."
- "I can share the breakdown if it is useful for your budgeting."
- "If the budget is fixed at Y, I can work to that with a reduced scope or fewer days a week."
Frequently asked questions
+How much more should a contractor charge than an employee salary?
Commonly 20% to 35% more, though the right number depends on your country's social contributions and how much unpaid leave and downtime you need to fund. Build it up from your own costs rather than applying a flat multiplier.
+Should I quote hourly, daily, or monthly?
Monthly or daily is usually better for ongoing work, because hourly billing tends to exclude the admin, planning, and communication time that the role actually requires. Hourly suits short or unpredictable engagements.
+How many billable days should I assume in a year?
Around 220 for a full-time contractor, after weekends, public holidays, five or six weeks of leave, and a realistic allowance for sick days and unbilled admin. Assuming 260 is the most common pricing mistake.
+How do I raise my rate with an existing client?
Give notice well before a renewal, state the new rate as a fact rather than a request, and tie it to something concrete such as inflation, scope growth, or a year of delivery. Offer the effective date at the start of the next contract period.
+Who should absorb currency fluctuation?
Whoever agrees to it in the contract, so decide it up front. The cleanest options are invoicing in your own currency, or agreeing a review if the exchange rate moves beyond a set band.