NOTES FOR USING THIS CALCULATOR: Only enter numbers (e.g. enter 65000 not $65000). If you try to enter a currency symbol you will get an NAN (Not A Number) error appear in each box. Whenever you insert a number or change an option, the calculator will re-calculate everything. You will get infinity for the hourly rate until you enter billable hours. However, once you have made all your choices, and you see an hourly rate, you can then tweak any value and see the hourly rate change instantly.
SALARY: You might like to try out average salaries for your profession, your city, your country, minimum wages, etc. For your fun (and for their edification) you can work out what your friends would have to charge if they went freelance! This is a good exercise if you plan to give up your day job!
SUPERANNUATION: employer contributions vary but at a minimum you might choose 9%.
BUSINESS COSTS: these are business overheads like rent, equipment, consumables, fees, insurances, travel, training, software, etc. You can estimate these and then insert an actual figure in the box. Obviously, these vary immensely depending on the type of job you do. Using a percentage of salary is just a quick way of estimating (rather like using costs as a percentage of turnover).
PROFIT: choose zero if you are an employee. If you work for yourself you should aim to make a profit (as well as a wage).
CURRENCY: you can assume any currency. I have assumed Australian Dollars but these are roughly equivalent to US Dollars.
HOLIDAYS: employees get standard holidays (four weeks?) plus public holidays (Christmas, New Year + various others scattered throughout the year). If you are freelance, I suggest you choose six weeks in total.
SICK LEAVE: employees get sick leave. Assume two weeks a year. This would also account for emergency or compassionate leave.
BILLABLE HOURS: employees should choose 7.5 hours if that is the average time that they are at work each day. For freelancers you have to be clear about how many hours you can bill clients. Only count those hours that you are actually spending on those clients. If you decide to quote your hourly rate then make it clear that that is time just spent on them (not on your own admin). Alternatively, you can price an entire job (or project) after you have estimated how long it will take. For example, if you take on a design job and you think that it will take twenty hours then you can multiply your calculated hourly rate by twenty to arrive at a starting figure.
ABOUT THIS CALCULATOR: This calculator is designed to work out the hourly rate that you must charge to earn a certain salary. Ideal for freelancers (e.g. graphic designers, photographers, illustrators, and writers) and people who work as sole traders. You can also use it if you earn a salary to estimate what your hourly rate is.
WHAT IS A REASONABLE HOURLY RATE? A reasonable rate would be one that equated to a reasonable salary for the same kind of work (taking into account all the costs and benefits of being self-employed).
SELF EMPLOYED EXAMPLE: Consider an illustrator working from home. Say they manage seven hours per day on the business, of which five hours is productive billable work (actually creating images for a client). Set a target salary of $50,000 per year. Let's be modest about super (9%), modest about business expenses (10%), take no profit, 6 weeks total holiday (4 weeks leave + bank holidays), and two weeks sick. On this calculator that gives you a charge of $54 per billable hour. That assumes that you get 5 hours billable work everyday of every working week, year in, year out. No bad debts, no serious illness, running on a shoestring. But $54 an hour sounds like a lot to a salaried worker.
SALARIED EMPLOYEE EXAMPLE: Consider a salaried worker on $50,000 per annum. Again, we set 9% super. No profit, no business costs. Also we will set holidays and sick leave at zero (since the salaried worker is paid when they are sick and on holiday). We set the hours at 7.5 per day, which is their hours at work. Gives an hourly rate of $28. This is just what the salaried worker receives. The employer needs to add in business costs and profits on top.
MARKET CONDITIONS: no matter what this calculator tells you that you should be charging, that is no guarantee that you will earn that. You are in an open (and, in some cases, global) market. If you charge too much you probably won't get any work.
LIMITATIONS: This calculator is only intended as a rough guide. It might help you negotiate a reasonable rate for a particular job. It should help you put your hourly rates in perspective when compared with comparable salaried jobs. This calculator has nothing to do with tax. You should seek proper, professional, advice for all matters relating to tax, including deductible expenses.