Day rate to salary
What a contract day rate works out at over a year, and what a salary quietly includes that it does not.
- Equivalent salary, day for day
- £0
- Day rate needed to match that salary
- £0
- Unbilled days assumed
- 0
- Against the salary you entered
- £0
The days assumption decides everything
A UK year holds roughly 253 working days once weekends and bank holidays are removed. Nobody bills all of them. Take off the holiday you actually intend to take, a week or two of illness, and the gaps between contracts, and 200 to 220 is where honest planning lands.
The difference is not small. At £500 a day, 253 days is £126,500 and 200 days is £100,000. Optimism about billable days is the commonest way contractors overestimate their income, and it usually shows up in January.
What a salary includes that a rate does not
- Paid holiday, typically 28 days including bank holidays. On a day rate those are days you simply do not earn.
- Employer pension contributions, at least 3% of qualifying earnings and often much more.
- Sick pay, and the ability to be ill without it costing you the day.
- Notice and redundancy rights, which a contract can end without.
- Steady work. A contract that ends in March does not pay you in April.
A common rule of thumb is that a day rate needs to sit 25% to 40% above the daily equivalent of a salary before you are genuinely level. The figures above show the raw gap rather than applying a rule, so you can weigh it against your own circumstances.
Then there is how it is taxed
This page treats the whole amount as employment income, which is the right comparison for an inside-IR35 engagement or an umbrella arrangement. If the work is genuinely outside IR35 and you use your own company, the tax picture changes materially. The umbrella against limited comparison works that through with corporation tax and dividends.
Common questions
- How many days a year should I assume?
- There are about 253 working days in a UK year once weekends and bank holidays are gone. Take off holiday you intend to take and a realistic allowance for gaps between contracts. Two hundred to 220 is the usual honest range, and 253 is a fantasy.
- Is a £500 day rate the same as a £126,500 salary?
- No, and the gap is large. A day rate buys no holiday, no sick pay, no employer pension, no notice period and no redundancy rights. Comparing the headline figures makes contracting look far better than it is.
- How much should I add for the things a salary includes?
- A common rule of thumb is that a day rate needs to be 25% to 40% above the daily equivalent of a salary to leave you level, once holiday, pension, sick pay and gaps between contracts are covered. The comparison above shows the raw gap so you can judge it yourself.
- Does IR35 change this?
- It changes how the money is taxed rather than how much the client pays. Inside IR35 the engagement is taxed broadly as employment. Outside, you can work through your own company. See the umbrella against limited comparison for what that does to take-home.