Quick answer
Start with day rate x billable days x realistic working weeks. Then compare take-home pay, not just headline gross income.
A contractor rate usually needs to cover unpaid holidays, sickness, gaps between contracts, admin time, insurance, equipment, training and pension planning.
Worked example: £500/day vs a salary
At £500 per day, 5 billable days per week and 46 working weeks, annual contract revenue is £115,000.
That is not equivalent to a £115,000 salary. A salary may include paid holiday, employer pension contributions, sick pay, benefits, training and employment rights.
For a contractor, the result depends on the route used: sole trader, limited company, inside IR35, outside IR35 or umbrella. Expenses and unpaid time can move the comparison materially.
Practical explanation
Use active billable weeks, not calendar weeks. A contractor who bills 46 weeks has already allowed for 6 weeks of holiday, sickness, admin or gaps.
Compare annual take-home and monthly average take-home. Monthly averages help because contractor income can be uneven.
If you are comparing with employment, put a rough value on benefits you would lose or gain, such as employer pension contributions, paid leave and sick pay.
Common mistakes
Multiplying a day rate by 260 weekdays and assuming all days are billable.
Ignoring IR35, umbrella fees or the cost of running a limited company.
Comparing contractor gross revenue with employee take-home pay.
Try the calculator
Use the related calculator to test the numbers against your own assumptions.
UK Contractor Day Rate CalculatorDisclaimer
This guide is for comparison planning only. It does not recommend contracting, employment, a company structure or a tax position.