What should I actually charge per hour as a freelancer?
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Most freelancers price by dividing their old salary by 2,000 hours and undercharge by a factor of two. The gap is tax you now pay yourself, costs your employer used to absorb, and every hour you work that nobody pays for.
Why Salary Divided by Hours Is the Wrong Answer
A salaried person earning ₹18 lakh works about 2,000 hours a year, which suggests ₹900 an hour. Almost every freelancer who prices this way ends up earning far less than they did as an employee, and usually cannot work out why.
Three things are missing from that division. First, not every working hour is billable. Selling, proposals, invoicing, admin, learning and the gaps between projects are all real hours that produce no invoice, and for most independent professionals only 50 to 65 percent of working time is billed. Second, the employer was paying for things that are now yours: provident fund, gratuity, insurance, equipment, software, workspace, paid leave and sick days. Third, tax is now visible and unwithheld, and it has to come out of the same rate.
There is also a fourth, quieter cost. Some invoices are paid late and a few are never paid at all. A rate that assumes perfect collection is a rate that fails in the year one client disappears. The model below works backwards from the take-home you actually need, through all four layers, to the number you should be quoting.
Freelance Rate Model
How the Rate Is Built
The model runs backwards through four layers. It grosses the take-home up for tax, adds your business costs, adds an allowance for invoices that are paid late or not at all, and then divides by billable hours rather than worked hours. Each layer is a real cost that a salary quietly absorbed on your behalf, and skipping any one of them produces a rate that looks competitive and does not pay you.
The billable hours line is usually the biggest surprise. A 40 hour week over 46 weeks is 1,840 working hours, but at 60 percent billable only about 1,100 of them produce an invoice. The other 740 are spent finding work, writing proposals, chasing payments and doing the administration that an employer used to handle. They are not wasted, and they are not billable.
This gives you two levers rather than one. Raising the rate is the obvious lever and the one clients resist. Raising the billable share is invisible to clients and often easier: better qualified leads, retainer arrangements instead of one-off projects, templates for proposals, and an accountant handling the compliance. As the verdict shows, ten points of billable share is worth a substantial rate reduction for the same income.
What Changes the Answer
Whether you can use presumptive taxation
Under Section 44ADA a resident professional with gross receipts within the prescribed limit can declare 50 percent of receipts as income, without maintaining detailed books. If your actual costs are below half your receipts, this usually lowers both your effective tax rate and your compliance burden considerably. Check the current threshold, which has been revised in recent years.
GST registration and whether your clients can claim it
Once you cross the registration threshold, GST is added on top of your fee. Business clients registered under GST claim it back, so it costs them nothing and is not a price increase. Individual or unregistered clients cannot, so for them it is a genuine 18 percent rise. Which type of client you serve changes how much room your headline rate has.
Fixed price work instead of hourly
Hourly billing caps your income at your capacity and penalises you for getting faster. Once you know your hourly floor, quoting a fixed price for a defined outcome lets efficiency raise your effective rate instead of shrinking your invoice. The hourly figure becomes the number you never quote below, not the number you quote.
Benefits you now buy yourself
Health insurance, disability cover, a retirement contribution and genuine paid leave were all employer costs and are now yours. If your annual business expenses figure does not include them, the rate is funding a life without insurance or holidays, and one illness reverses several good years.
How We Calculated This
The Decision Framework
Frequently Asked Questions
How do I convert my old salary into a freelance rate?+
What billable percentage is realistic?+
Should I charge hourly or a fixed price?+
Do I need to register for GST as a freelancer?+
What is Section 44ADA and should I use it?+
How much should I allow for unpaid invoices?+
Sources and Method References
- Income Tax Department — Section 44ADA presumptive taxation for professionals
- GST Portal — registration thresholds and service tax rates
- Ministry of Corporate Affairs — business structure and compliance requirements
The concept behind the number
This scenario gives you a figure. These pages give you the idea it comes from, the words on the inputs, and the article that works through the decision.