What an employee actually costs
A 60,000 salary is not a 60,000 hire. Employer taxes, benefits and everything else usually take the real figure to somewhere between 1.25 and 1.4 times the salary, and anyone budgeting from the salary alone is short by that difference before the person has started.
The same arithmetic run the other way explains why a freelance day rate has to look so much larger than a salary to be equivalent — and it usually is not, even when it looks it.
The multiple, and what is in it
Take a 60,000 salary with employer taxes at ten per cent, 9,000 of benefits and 2,500 of other costs. The annual figure is 77,500 — a multiple of 1.29, and 17,500 of cost that never appears on the payslip.
Between 1.25 and 1.4 is the usual range, and where you land depends mostly on how generous the benefits are and how heavy the employer contributions are in your jurisdiction.
What is typically not in that number is worth listing, because it is all real: recruitment, equipment, software licences, training, the desk they sit at, and the time other people spend managing them. Any of it that can be quantified belongs in the calculation.
Salary 60,000
Employer tax 10% 6,000
Benefits 9,000
Other 2,500
Total 77,500 (1.29x salary, 37.26 an hour)
Work it out: Employee Cost Calculator →
The hourly figure is the one that changes decisions
Divide that 77,500 by 2,080 working hours and it is 37.26 an hour. That number is far more useful than the annual one, because it is the figure to hold against any decision about whether to hire, outsource, automate or simply leave something undone.
It is also usually a good deal higher than people expect, which is precisely what makes it useful. A recurring task that eats four hours a week costs around 7,750 a year in salary cost alone, and that is a very different conversation from "it only takes an afternoon".
The 2,080 is itself a convention — forty hours for fifty-two weeks — and it counts holiday as working time. Using actual productive hours pushes the hourly figure higher still.
Why a contract rate has to be so much bigger
Run the same logic for someone self-employed and the numbers get uncomfortable. To take home 60,000 with 8,000 of expenses and tax at twenty-five per cent, you need to invoice 88,000.
Then the hours. Working forty hours a week for forty-eight weeks is 1,920 hours, but only about sixty per cent of them are billable — the rest go on finding work, quoting, invoicing and admin. That leaves 1,152 billable hours, so the rate has to be 76.39 an hour, or about 611 a day.
Set against a salaried employee on 50 an hour, that looks like a large premium and is not. The unbillable hours are paid for by the billable ones, and none of the following exist: paid holiday, sick pay, an employer pension contribution, or a notice period.
The number people are most optimistic about is weeks per year. Fifty-two assumes you never take a holiday and are never ill.
Target take-home 60,000, expenses 8,000, tax 25%
Must invoice 88,000
Hours worked 1,920 (40 x 48 weeks)
Billable at 60% 1,152
Rate 76.39 an hour / 611 a day
Work it out: Freelance Rate Calculator →
Overtime and leave are contract questions, not arithmetic ones
Time and a half beyond forty hours a week is common and nowhere near universal. Thresholds and multipliers vary by country, industry and contract, and some places apply a daily threshold as well — which can pay overtime on a long day inside a short week.
The arithmetic itself is simple: forty-six hours at 22 with time and a half beyond forty is 880 of base pay plus 198 of overtime, so 1,078 for the week and an effective rate of 23.43.
Leave usually accrues in proportion to hours worked, which is why part-time staff earn it at the same rate per hour rather than being excluded. Twenty-five days a year works out at 3.85 hours of leave for every forty-hour week.
What happens to unused leave — carried over, expired, or paid out — depends on the contract and on local law, and the rules differ sharply between countries. That part is not something a calculator should be guessing at.
Work it out: Overtime Calculator →
Questions
How much does an employee cost beyond salary?
Typically 25 to 40 per cent more. A 60,000 salary with ten per cent employer tax, 9,000 of benefits and 2,500 of other costs comes to 77,500 — a multiple of 1.29.
What is not included in that figure?
Recruitment, equipment, software licences, training, workspace and the management time they take. All of it is real and most of it is quantifiable.
How do I work out an employee cost per hour?
Total annual cost divided by working hours — 77,500 over 2,080 hours is 37.26. It is the number to use when deciding whether a task is worth doing in-house.
What should I charge as a freelancer?
Work backwards from take-home. Add expenses and tax to get the revenue you need, then divide by billable hours rather than hours worked — typically about sixty per cent of them.
Why is a freelance rate so much higher than a salary?
Because it has to cover unbillable time, tax, expenses, and the absence of paid holiday, sick pay and pension contributions. A rate that looks like a large premium usually is not one.
How does holiday accrual work?
Usually in proportion to hours worked, so twenty-five days a year is about 3.85 hours earned per forty-hour week. Whether unused leave carries over depends on the contract and local law.