How do I convert a salary to a 1099 hourly rate?

Add the employer's payroll tax share, health insurance, retirement match and the value of paid time off to the salary, then divide by billable hours rather than 2,080. For a $100,000 salary at 75% utilisation this gives roughly $89 an hour, compared with the $48 a naive division produces.

What multiple of my salary should I charge as a contractor?

A common rule of thumb is to take the salary-equivalent hourly rate and add 50% to 100%. The wide range reflects utilisation and benefit costs: someone with employer-provided coverage through a spouse and a full pipeline needs less uplift than a contractor buying family health insurance with a 60% billable rate.

How much is self-employment tax?

15.3% on net self-employment earnings up to the Social Security wage base — 12.4% Social Security plus 2.9% Medicare — then 2.9% above it, with an extra 0.9% Medicare surtax at higher income levels. You can deduct the employer-equivalent half when calculating income tax, which reduces the effective cost.

What billable utilisation should I assume?

Established independent contractors typically bill 65% to 80% of a nominal full-time year. Assume 50% to 60% in your first year while building a pipeline. Utilisation affects your required rate more than tax does, and it is the assumption new contractors most often get wrong.

Is 1099 work better paid than W2?

Per hour, almost always — it has to be, to cover the costs an employer previously absorbed. Whether it is better paid overall depends on whether the rate uplift genuinely exceeds those costs plus the value of employment protections. A contract at 20% above your salary-equivalent rate is a pay cut, not a raise.

Salary to Hourly Rate for 1099 Contractors

Dividing a salary by 2,080 gives the wrong answer for contract work, and it gives it in the direction that costs you money. A $100,000 employee does not need $48 an hour as a contractor — they need something closer to $80, because they are about to start paying both halves of payroll tax, buying their own health insurance, funding their own retirement, taking unpaid holidays, and absorbing every hour spent on sales, invoicing and admin.

Use the calculator for the naive conversion first, then work through the build-up below. It is the difference between a contract rate that matches your old salary and one that quietly represents a 35% pay cut.

Annual salary

Gross, before tax and deductions.

Currency

Hours per week

Use what you really work, not what's contracted.

Weeks per year

Paid time off (optional)

Adds an effective hourly rate based on hours you are actually at work.

Paid holidays

Vacation days

Hourly rate

$48.08

Based on 2,080 scheduled hours a year.

Per day: $384.62
Per week: $1,923.08
Every two weeks: $3,846.15
Per month: $8,333.33
Effective rate on hours worked: $53.19

All figures are gross, before income tax, payroll deductions and benefits. Take-home pay depends on where you live and your personal situation.

Starting values are set for a typical 1099 contractors scenario — change any field to match yours. Need the plain version? Salary to Hourly Calculator.

Building a 1099 rate from a W2 salary

Each line below is a cost your employer previously carried. The example converts a $100,000 salary into the contract rate that genuinely matches it.

From $100,000 W2 to an equivalent 1099 rate
Step	Adjustment	Running total
W2 salary	—	$100,000
Employer payroll tax you now pay	+7.65% (the employer half of FICA)	$107,650
Health insurance	+$9,000 to $24,000 for family cover	$121,650
Retirement match forgone	+4% of salary	$125,650
Paid time off (25 days)	+10% — you are now unpaid for it	$138,215
Billable hours only 75% of the year	÷ 1,560 rather than 2,080	$88.60/hr

The naive calculation gives $48.08. The genuine equivalent is roughly $89 — about 84% higher. This is why experienced contractors quote 1.5× to 2× the salary-equivalent rate.

Utilisation is the number people forget

An employee is paid for every hour at their desk. A contractor is paid only for billable hours, and everything else — finding work, quoting, invoicing, chasing payment, bookkeeping, training — comes out of the same year.

Required rate at different utilisation levels for $138,215 of target income
Utilisation	Billable hours/year	Required rate
90% (rare, agency-fed pipeline)	1,872	$73.83
80% (strong, established)	1,664	$83.06
75% (realistic established)	1,560	$88.60
65% (typical mid-stage)	1,352	$102.23
50% (early, or heavy sales cycle)	1,040	$132.90

Utilisation has a larger effect on the required rate than self-employment tax does. New contractors consistently overestimate it.

Costs and considerations beyond the rate

Self-employment tax is 15.3% on net earnings up to the Social Security wage base, then 2.9% Medicare above it, with an additional 0.9% at higher incomes. You may deduct the employer-equivalent half, which softens the impact.
Quarterly estimated tax payments are required. Underpayment penalties apply, so set aside tax as revenue arrives rather than at year end.
The qualified business income deduction may allow up to a 20% deduction on qualifying pass-through income, subject to significant limits. This is worth modelling with an accountant rather than assuming.
Business expenses — equipment, software, home office, professional development, liability insurance — are deductible, which offsets part of the tax burden.
Income volatility carries its own cost. A month without work has no salary behind it, so a cash buffer of three to six months is part of the price of contracting.
No unemployment insurance, no employer disability cover, and no paid parental leave in most cases. Price these in or insure them privately.

Frequently asked questions

How do I convert a salary to a 1099 hourly rate?: Add the employer's payroll tax share, health insurance, retirement match and the value of paid time off to the salary, then divide by billable hours rather than 2,080. For a $100,000 salary at 75% utilisation this gives roughly $89 an hour, compared with the $48 a naive division produces.
What multiple of my salary should I charge as a contractor?: A common rule of thumb is to take the salary-equivalent hourly rate and add 50% to 100%. The wide range reflects utilisation and benefit costs: someone with employer-provided coverage through a spouse and a full pipeline needs less uplift than a contractor buying family health insurance with a 60% billable rate.
How much is self-employment tax?: 15.3% on net self-employment earnings up to the Social Security wage base — 12.4% Social Security plus 2.9% Medicare — then 2.9% above it, with an extra 0.9% Medicare surtax at higher income levels. You can deduct the employer-equivalent half when calculating income tax, which reduces the effective cost.
What billable utilisation should I assume?: Established independent contractors typically bill 65% to 80% of a nominal full-time year. Assume 50% to 60% in your first year while building a pipeline. Utilisation affects your required rate more than tax does, and it is the assumption new contractors most often get wrong.
Is 1099 work better paid than W2?: Per hour, almost always — it has to be, to cover the costs an employer previously absorbed. Whether it is better paid overall depends on whether the rate uplift genuinely exceeds those costs plus the value of employment protections. A contract at 20% above your salary-equivalent rate is a pay cut, not a raise.