A day rate is not a salary
The most common mistake when comparing a contract rate to a job offer is to multiply the day rate by a full year of weekdays (~260) and compare that to the salary. That overstates contracting badly, because a contractor is not paid for every weekday and keeps far less of the headline number than an employee keeps of theirs. This tool compares what actually lands in your pocket — net to net — and then tells you the day rate at which the two are equal.
Three different numbers
A salary looks like one figure but behaves as three (OECD, 2024). What the employer spends, what you are paid, and what you keep are all different:
| Figure | Who sees it | Typical relation |
|---|---|---|
| Employer total cost | The business | Salary + ~20–30% on-costs |
| Gross salary | The offer letter | The headline number |
| Net (take-home) | Your account | Salary − income tax & social |
Non-wage costs — employer social contributions, insurance, paid leave — add roughly a quarter on top of salary in the EU (Eurostat, 2024) and about 30% of total compensation in the US (BLS, 2024). As a contractor you invoice something closer to that full employer cost, which is why a good day rate can look generous and still only break even.
What a contractor self-funds
The calculator subtracts two things the employee never sees. First, overhead — accountancy, insurance, equipment, unbillable admin, training — as a percentage of gross. Second, you are only paid for billable days: holidays, sickness, bench time and business-development days are unpaid, so the working-days input (e.g. 220, not 260) is doing real work. Pension and health provision that an employer would part-fund also come out of the contractor's gross.
The break-even day rate
Setting contractor net equal to employee net and solving for the rate gives the figure the tool reports:
break-even = employeeNet ÷ [(1 − overhead) × (1 − tax) × billableDays]
Anything above it means contracting wins on take-home; anything below means the salary does. It makes the cost of each unbillable day explicit — drop from 220 to 200 billable days and the break-even rate climbs by about 10%.
A worked example
Employee on 80,000 gross, 40% effective tax → 48,000 net. Contractor with 10% overhead and a 35% self-employed rate:
- Break-even = 48,000 ÷ (0.90 × 0.65 × 220) ≈ 373 per day.
- At a 500 day rate over 220 days: gross 110,000, less 10% overhead and 35% tax ≈ 64,350 net — about 16,000 ahead.
Limitations
This is a planning model, not tax advice. It uses the flat effective rates you enter; real tax is progressive, jurisdiction- specific, and depends on company structure, VAT, allowable expenses, and region. It does not price the things that make contracting riskier than the spreadsheet suggests: income volatility, no notice period or redundancy pay, self-funded sick leave, and the possibility that tax authorities reclassify a contract as disguised employment (IR35 in the UK, Scheinselbständigkeit in Germany). Treat the break-even rate as a floor to negotiate above, not a target, and confirm the tax figures with an accountant in your country.