The real difference between an employee salary and freelance income
When comparing a job offer to freelance work, the headline numbers are misleading. A $100,000 salary is not the same as $100,000 in freelance revenue. The gap comes from taxes, benefits, downtime, and overhead.
The tax gap
As an employee, your employer pays half your FICA taxes (7.65%). As a freelancer, you pay both halves (15.3%). On $100,000 of income, that is $7,650 more in taxes.
As an employee, your employer withholds taxes from each paycheck. As a freelancer, you must make quarterly estimated payments. Miss one and you face penalties.
The benefits gap
Employers pay roughly 30% of salary on benefits: health insurance, retirement contributions, paid time off, sick leave, and workers compensation. As a freelancer, you pay 100% of these costs. Health insurance alone can cost $500-1,500 per month for a family plan.
The downtime gap
Employees get paid for 52 weeks per year. Freelancers bill for 20-30 hours per week and take unpaid time off for sick days, holidays, and vacations. A freelancer who bills 1,200 hours per year at $100/hour earns $120,000 in revenue, but after expenses and taxes, the take-home is roughly equivalent to a $70,000 salary.
The true hourly rate formula
To find the freelance equivalent of a salary:
- Multiply salary by 1.3 (benefits + employer taxes)
- Add business expenses
- Divide by billable hours
A $100,000 salary: $100,000 × 1.3 = $130,000. Add $15,000 in expenses = $145,000. Divide by 1,200 hours = $121/hour.
Use the Salary to Hourly Calculator to do the math for your specific numbers.