Convert between annual salary and contractor day rate — with the true contractor premium needed to match PAYE take-home
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How to convert salary to day rate
The basic conversion divides annual salary by working days. But contractors fund costs that employers cover for employees — so the true equivalent day rate is always higher than the basic conversion suggests.
What the basic conversion misses
When you are employed, your employer pays:
Employer NI: 15% on earnings above £5,000 (on a £60k salary, ~£8,250/year)
Holiday pay: 28 days paid leave (worth ~£7,600 at £60k salary)
Employer pension: typically 3–5% of salary (£1,800–£3,000/year at £60k)
Sick pay: statutory minimum or above
As a contractor, all these costs come out of your day rate. This is why contractors earn more per day than an equivalent employed salary — not because contractors are overpaid, but because they fund their own employment costs.
The contractor premium rule of thumb
To end up with the same take-home pay as an equivalent PAYE employee, contractors typically need a day rate that is 30–50% higher than the basic salary-to-day conversion. The exact premium depends on how many days you work, what structure you use, and whether you are inside or outside IR35.
Frequently asked questions
Basic formula: day rate = annual salary ÷ working days. At 220 days: £60,000 ÷ 220 = £273/day. But to genuinely replicate total employment cost, add 30–50% — so £355–£410/day to match a £60,000 employed salary.
Basic: £227/day at 220 days. To genuinely replicate a £50,000 employment package (including employer NI, holiday pay, pension): £290–£320/day. Use the calculator above for a personalised figure including 2026/27 tax rates.
The extra day rate needed above the basic conversion, to end up with the same net income as equivalent PAYE employment. It covers Employer NI, holiday pay, sick pay, gaps between contracts, accountant fees, and the value of employment benefits. Typically 30–50% above the basic daily rate.
220 days is the standard benchmark (260 − 28 holidays − 8 bank holidays − 4 days gap). Conservative estimate: 200 days. Long-term single client: 230–240 days. Permanent employees have 230+ chargeable days because they are paid for holidays.
Always quote excluding VAT (net). Add 20% VAT on your invoice if VAT-registered. Most contractors with day rates above £410 exceed the £90,000 VAT threshold in a year. In B2B contexts this is usually neutral — the client reclaims the VAT. See our VAT calculator for amounts.