How many billable days should I assume in a contracting year?

Around 200-230 days is a common planning range once leave, public holidays, illness and gaps between contracts are subtracted from roughly 260 weekdays. Assuming 250 or more implies effectively no time off and no bench time, which very few contractors sustain year after year.

How much higher does a day rate need to be to match a salary?

A frequently used rule of thumb is a 20-40% premium over the salary-equivalent daily figure, covering unpaid leave, benefits, employer contributions and downtime. The honest answer depends on your own bench time and expenses, which is exactly what this calculator makes explicit.

What counts as tax drag in this comparison?

It is the simplified difference between what you keep as a contractor and what you would keep on a payroll for the same gross figure, covering self-employment or corporation tax, contributions the employer would otherwise pay, and any accountancy overhead. It is a single blended percentage here, so treat it as an estimate to check with a tax adviser.

Does IR35 change the outcome for UK contractors?

Substantially. An inside-IR35 engagement is taxed broadly like employment while still carrying contractor risks such as no paid leave and no notice, so the same day rate produces materially less advantage than an outside-IR35 contract at that rate.

Should employer pension contributions be counted as salary?

Yes, as part of the package rather than the headline salary. A 6% employer contribution on 85,000 is 5,100 of real value each year, and leaving it out of the comparison understates the employed option by roughly that amount.

Contractor vs employee calculator

A day rate and a salary are not comparable numbers until three things are stripped out of the contract side: the days you will not bill, the expenses no employer is covering, and the tax and contribution drag that a payroll department would otherwise handle. Multiply a headline day rate by 260 working days and contracting always looks better; adjust for those three items and the gap often narrows to a fraction of what it first appeared.

Billable days, not calendar days

A salaried year contains paid holiday, public holidays and sick days. A contract year contains none of them — an unworked day is simply an unpaid day, and the search for the next engagement happens on unpaid time too.

Someone billing 220 days at 500 grosses 110,000, while the same rate over an optimistic 260 days would suggest 130,000. That 20,000 difference is nothing but leave and bench time, and it is the single largest source of error when people compare an offer to a contract.

Contract length matters as much as the rate. A twelve-month rolling engagement and a series of six-week projects can carry the same day rate while producing very different annual totals, because the shorter engagements come with gaps, ramp-up time and repeated business development.

Comparing a real offer with a real contract

Take a salaried package of 85,000 with a 6% pension contribution, private medical cover worth roughly 1,800, and 28 days of paid leave. The employer's cash outlay beyond salary is about 6,900, so the package is worth in the region of 91,900 before tax.

Now take a 520 day rate over 215 billable days: 111,800 gross. Subtract 6,000 of business expenses — accountancy, insurance, equipment, software — and 105,800 remains. Apply a 6-point tax and contribution drag relative to employment and the comparable figure lands near 99,452, still ahead of the salaried package but by far less than the raw 111,800 suggested.

Change one input and the ranking flips. At 180 billable days rather than 215, the same 520 rate grosses 93,600, and after the same expenses and drag the contract is worth roughly 82,368 against a 91,900 package. A quiet quarter is the difference between the two options, which is why bench-time assumptions deserve more scrutiny than the rate itself.

What the numbers cannot capture

Employment carries statutory protections that never appear in a rate comparison: notice periods, redundancy entitlement in many jurisdictions, parental leave, and in some countries employer-funded sick pay. Contracting typically replaces all of these with a cash premium you must self-insure.

Pension and retirement saving move from automatic to discretionary. An employer contribution is money that arrives whether or not you think about it; a contractor's equivalent only exists if it is deliberately transferred each month from business income.

Career effects run in both directions. Contracting exposes you to more organisations and often to higher-value problems, but it can shorten access to structured progression, internal training budgets and long-horizon projects. Neither the day rate nor the salary line reflects any of that.

Status rules, IR35 and worker classification

Classification is a legal test, not a preference, and getting it wrong is expensive. In the United States, the IRS evaluates behavioural control, financial control and the nature of the relationship to decide whether someone is an independent contractor or an employee, and misclassification can trigger back taxes and penalties for the engaging business.

In the UK, the off-payroll working rules — IR35 — ask whether the engagement would look like employment if the intermediary company were removed. When a contract is judged inside IR35, income tax and National Insurance are deducted much as they would be for an employee, which erases a large part of the take-home advantage a day rate appears to offer. Any comparison should therefore be run twice: once assuming outside-IR35 treatment and once assuming inside.

Insurance obligations differ by market too. Professional indemnity and public liability cover are contractual requirements for many UK and EU engagements, while US contractors frequently carry general liability and errors-and-omissions policies. Those premiums belong in the expenses input rather than being treated as optional extras.

Frequently asked questions

How many billable days should I assume in a contracting year?: Around 200-230 days is a common planning range once leave, public holidays, illness and gaps between contracts are subtracted from roughly 260 weekdays. Assuming 250 or more implies effectively no time off and no bench time, which very few contractors sustain year after year.
How much higher does a day rate need to be to match a salary?: A frequently used rule of thumb is a 20-40% premium over the salary-equivalent daily figure, covering unpaid leave, benefits, employer contributions and downtime. The honest answer depends on your own bench time and expenses, which is exactly what this calculator makes explicit.
What counts as tax drag in this comparison?: It is the simplified difference between what you keep as a contractor and what you would keep on a payroll for the same gross figure, covering self-employment or corporation tax, contributions the employer would otherwise pay, and any accountancy overhead. It is a single blended percentage here, so treat it as an estimate to check with a tax adviser.
Does IR35 change the outcome for UK contractors?: Substantially. An inside-IR35 engagement is taxed broadly like employment while still carrying contractor risks such as no paid leave and no notice, so the same day rate produces materially less advantage than an outside-IR35 contract at that rate.
Should employer pension contributions be counted as salary?: Yes, as part of the package rather than the headline salary. A 6% employer contribution on 85,000 is 5,100 of real value each year, and leaving it out of the comparison understates the employed option by roughly that amount.

Sources

IRS — Independent contractor (self-employed) or employee? — Describes the behavioural, financial and relationship factors the IRS uses to determine worker classification in the United States.
HMRC — Understanding off-payroll working (IR35) — Official guidance on when UK engagements fall inside the off-payroll working rules and how income is then taxed.