Leaving a Salaried Job to Freelance Remotely: The Rate That Replaces Your Salary
Remote work opened a door that used to be harder to walk through: leaving a salaried job and selling the same skills directly to clients, from anywhere. The first question most people ask is "what should I charge?", and the first answer most people reach for is their salary divided by 2,080 hours. On a $72,000 salary that is $34.62 an hour. It is the wrong number, and freelancers who start there often find out the hard way, a few months in.
This guide builds the right number from your current job, using three of our calculators in turn: the Salary to Hourly Calculator, the Take-Home Pay Calculator and the Freelance Hourly Rate Calculator. The figures are an example, not a recommendation, and they are planning estimates rather than tax or financial advice.
Step 1: what your salary is per hour
Enter $72,000 as an annual salary with the defaults of 40 hours and 52 weeks. The Salary to Hourly Calculator returns $34.62 an hour, $6,000.00 a month, $1,384.62 a week. That is your gross pay per scheduled hour, including paid holidays and vacation. If your real week is longer than 40 hours, your actual hourly rate is lower; our guide to salaried hours shows how to measure it.
Keep this number as a reference point. It is what you are walking away from, not what you should charge.
Step 2: what your job actually gives you
A salary is only part of what an employer provides. List what you receive now. In this example:
- A 5% pre-tax retirement contribution from your own pay: $3,600 a year.
- An employer match of 50% on the first 6% of salary: $2,160 a year.
- Health insurance, where you pay $2,000 a year of the premium pre-tax and the employer pays $6,000. (These figures are illustrative. Your benefits statement or HR portal will show what your employer actually contributes.)
- Paid holidays, vacation and sick days.
- A laptop, software and a desk, paid for by the employer.
Now run the paycheck through the Take-Home Pay Calculator: $72,000, biweekly, 5% retirement, $2,000 pre-tax insurance and an effective tax rate. We use 24% as an illustration; the calculator does not know your country, state or tax year and simply applies the rate you enter, so read your own off a pay stub (see finding your effective tax rate).
| Line | Amount |
|---|---|
| Pre-tax deductions | $5,600.00 |
| Taxable base | $66,400.00 |
| Tax at 24% | $15,936.00 |
| Net pay per year | $50,464.00 |
| Net per month | $4,205.33 |
There is also a better reference point than salary alone. Add the employer's match ($2,160) and its share of health insurance ($6,000) to the salary and your total compensation is $80,160 a year. Run that through the Salary to Hourly Calculator and it comes to $38.54 an hour. That is closer to what your employer actually pays for an hour of your time, and still well short of what a freelance rate has to cover, for reasons the next steps make clear.
Step 3: set the income target
The Freelance Hourly Rate Calculator asks for the income you want to keep after business expenses and after its buffer. A fair target is "the same life I have now": the same take-home pay, and the same amount going into retirement.
- Net pay: $50,464
- Your own retirement contribution, which you want to keep making: $3,600
- The employer match, which you will no longer receive but want to keep saving: $2,160
- Target: $56,224
How retirement saving works for the self-employed, and how it is taxed, differs from an employer plan and from country to country. A financial or tax professional can advise on the right vehicle. For pricing, what matters is that the money has to come from your rate.
Step 4: list the expenses your employer used to pay
- Health insurance, now the whole premium: $2,000 + $6,000 = $8,000. In practice an individual policy may cost more or less than your employer's plan; get a real quote.
- Equipment, software, professional insurance and accounting help: $3,500.
- Total expenses: $11,500.
Paid leave does not go in as an expense. It goes in through the working-weeks figure in the next step.
Step 5: be realistic about hours and weeks
As an employee you were paid for 52 weeks and for every hour of the working week, including meetings, admin and slow afternoons. As a freelancer you are paid only for billable hours in the weeks you work. This example assumes 26 billable hours a week and 46 working weeks, leaving time for holidays, a vacation, some illness, and the hours spent finding clients and running the business. Our guide on billable hours explains why this number is lower than people expect.
Step 6: choose a buffer
The calculator's buffer is one percentage of revenue that it describes as covering self-employment tax, non-billable time, software and overhead, and profit. We use the default 30%. As an employee, part of your payroll taxes was paid by your employer, and income tax was withheld for you. As a freelancer, you may owe taxes your employer used to pay, and you are responsible for setting money aside and paying it yourself. How much depends entirely on where you live and how you set up your business. The calculator does not compute any tax, so check the buffer against an estimate from your tax authority's guidance for the self-employed or from a tax professional.
The result
| Naive: salary ÷ 2,080 | Built from your job | |
|---|---|---|
| Target and expenses | $72,000, none | $56,224 + $11,500 |
| Billable hours a year | 2,080 | 1,196 |
| Buffer | 0% | 30% |
| Hourly rate | $34.62 | $80.89 |
| Day rate (8 hours) | $276.92 | $647.15 |
| Revenue needed | $72,000.00 | $96,748.57 |
The rate that replaces this salary is 2.34 times the salary's hourly equivalent. Revenue needs to be $24,748.57 more than the salary, because the business now pays for the benefits, the unbilled time and the taxes that used to be handled for you. That is about $8,062.38 of invoices a month on average.
And here is what happens if you charge the naive rate anyway: $34.62 an hour across 1,196 billable hours brings in $41,405.52, which is $55,343.05 short of what you need. A gap like that is very hard to make up later in the year.
Sensitivity: what moves the number
- More billable time. At 30 billable hours a week over 47 weeks, the rate falls to $68.62. Longer engagements and retainers are the usual way to get there.
- A bigger buffer. If your tax estimate says you need 35%, the rate rises to $87.12, and revenue to $104,190.77.
- Cheaper or pricier insurance. Health cover can be the largest single expense, so a real quote matters more than any other number in the list.
A middle path: contracting full time for one remote client
Not every move out of employment means juggling many clients. Some people leave a salaried job to contract full time for a single remote client, sometimes their old employer. Billable hours are much closer to working hours in that arrangement, because there is little selling between projects while the contract runs. With the same target, expenses, buffer and 46 weeks, but 36 billable hours a week, the calculator gives $58.42 an hour, about 1.69 times the salary's hourly equivalent.
That lower rate comes with a different risk. When the single contract ends, income stops completely until the next one starts, and the gap between contracts is time you are not billing. If you price for 36 hours a week, a reserve that can cover several weeks of expenses becomes even more important. Whether such an arrangement is treated as genuine self-employment or as employment in disguise is also something the law in many places looks at closely; a professional adviser can tell you how it is assessed where you work.
Before you hand in your notice
- Run all three calculators with your own numbers, not ours.
- Get a real health insurance quote and an estimate of your tax position from a professional.
- Test the market: what do clients in your field pay for the work you would do? If it is well below your rate, decide which inputs you can change.
- Build a cash reserve. Clients pay late, projects end, and the first months usually bring more selling than billing.
- Check your employment contract for notice periods and any restrictions on working for your employer's clients or competitors.
- Consider starting with one client while still employed, if your contract allows it, to test your billable hours.
Common questions
Can I charge less than the rate the calculator gives?
You can, but know what it means. Below the base rate ($56.63 here, before the buffer) the work does not even cover your target and expenses before tax. Between the base rate and the recommended rate, you are spending the buffer that was meant for tax and margin.
What about paid time off?
There is none. The working-weeks input is how you pay for it: every week you do not work is funded by the weeks you do. If you want five weeks off, enter 47 or fewer.
Should I quote clients my "replacement rate" straight away?
Quote what the market for your work supports, using the replacement rate as your floor. If early clients will only pay less, treat the gap as a known, temporary cost of building the business and decide in advance how long you are willing to carry it, rather than letting a low starting rate become permanent.
Is freelancing better or worse paid than employment?
Neither, in general. Some people earn more and some less, and income is less predictable. These calculations cannot tell you whether to make the move, only what rate makes the numbers work if you do.
Start with your salary in the Salary to Hourly Calculator, then your paycheck in the Take-Home Pay Calculator, and finish in the Freelance Hourly Rate Calculator. For the method behind each freelance input, see how to set a freelance hourly rate from the income you need.