How to Calculate Your Contractor Day Rate From a Salary
Everything you need to convert a permanent salary into a contract day rate, including the formula, working days, pension, holiday pay, IR35 impact, and worked examples for the 2026/27 tax year.
The Core Formula
Converting a permanent salary to a contractor day rate is straightforward once you understand the components. The basic formula is:
The logic is simple: as a permanent employee, your employer covers holiday pay, pension contributions, sick pay, employer NI, training, equipment, and benched time. As a contractor, you absorb all of these costs yourself, so your day rate must be higher than the simple salary-per-day calculation.
Most contractors aim for a day rate that delivers a net take-home pay equivalent to or better than their permanent salary. The difference — often called the “contractor premium” — compensates you for the risk of bench time, lack of employment rights, and the additional administrative and tax costs of running your own business.
How Many Working Days Per Year?
The number of working days is the denominator in the formula and has a big impact on your required rate. A permanent employee typically works around 260 weekdays per year (52 weeks × 5 days). But contractors don't get paid for time off, so you must deduct:
| Category | Typical days |
|---|---|
| Weekdays per year | 260 |
| Holiday (self-funded) | −25 |
| UK bank holidays | −8 |
| Sick days / bench time | −5 to −10 |
| Typical working days | 217 to 222 |
Most UK contractors use 220 to 230 working days as their baseline. The contractor day rate calculator defaults to 222 days (260 minus 25 holiday, 8 bank holidays, 5 sick/bench) which is a reasonable starting point. If you expect longer bench periods between contracts, use a lower number — some contractors use 200 days to be conservative.
Factoring in Pension Contributions
Pension is one of the most significant differences between permanent and contract work. A permanent employee typically receives an employer pension contribution of 3–8% of salary (the minimum under auto-enrolment is 3%). As a contractor outside IR35, you can make company pension contributions that are corporation tax deductible.
If you were receiving a 5% employer pension contribution in your permanent role worth £3,500 on a £70,000 salary, you need to build that value into your day rate. As a contractor, a 5% pension contribution on a £130,000 gross contract reduces your corporation tax bill significantly — it is one of the most tax-efficient ways to save for retirement.
The rate uplift calculator lets you adjust pension percentage to see the exact effect on your required day rate across all three IR35 scenarios.
Holiday Pay, Sick Pay, and Training Days
Permanent employees receive 28 days of paid leave (including bank holidays) by law, plus sick pay and often paid training days. As a contractor:
- Holiday pay: You fund your own holidays. Every day you don't work is a day you don't get paid. This is why contractors build holiday allowance into their rate rather than taking a separate holiday payment.
- Sick pay: Statutory Sick Pay (£116.75/week) is negligible for most contractors. You need reserves or insurance to cover illness.
- Training days: Permanent employees often get paid training days. Contractors must fund their own professional development, which means either working fewer billable days or absorbing the cost into the rate.
- Bench time: The gap between contracts is entirely unpaid. A common rule of thumb is to assume 4–6 weeks per year of non-billable time.
Permie Total Compensation vs Contractor Rate
A permanent salary is only part of your total compensation. Here is what a £70,000 permanent role actually costs your employer and what you receive in total:
| Component | Value |
|---|---|
| Salary | £70,000 |
| Employer NI (15% above £5,000) | £9,750 |
| Employer pension (5%) | £3,500 |
| Apprenticeship levy (0.5%) | £350 |
| Training budget (est.) | £1,000 |
| Equipment / laptop | £500 |
| Total employer cost | £85,100 |
To match that total compensation as an outside IR35 contractor, your day rate needs to cover not just the £70,000 salary equivalent, but also your own NI, pension, training, equipment, insurance, and the risk of bench time. Using 222 working days, the calculation looks like this:
| Approach | Calculation | Day rate |
|---|---|---|
| Naive (salary ÷ days) | £70,000 ÷ 222 | £315/day |
| + Employer costs (15% uplift) | £315 × 1.15 | £362/day |
| + Pension, training, risk (30% uplift) | £315 × 1.30 | £410/day |
| Realistic outside IR35 range | £70,000 × 1.5 ÷ 222 to £70,000 × 1.75 ÷ 222 | £475–£550/day |
The rule of thumb is to multiply your salary by 1.5 to 1.75, then divide by your working days. A £70,000 salary translates to roughly £475–£550/day outside IR35. Inside IR35, you would need a higher rate to compensate for employer NI and the lack of dividend tax efficiency. Use the interactive calculator to find your precise number.
Worked Example: £80,000 Salary to Day Rate
Let’s walk through a concrete example. A senior project manager earning £80,000 in a permanent role wants to move to contracting. They plan to work 5 days per week, 46 weeks per year, taking 25 days holiday plus 8 bank holidays, allowing 5 sick/bench days = 222 working days.
| Metric | Outside IR35 | Inside IR35 | Umbrella |
|---|---|---|---|
| Target net income | £80,000 | ||
| Working days | 222 | ||
| Required day rate | £590 | £770 | £710 |
| Gross annual contract | £130,980 | £170,940 | £157,620 |
| Net take-home | £80,000 | £80,000 | £80,000 |
| Uplift from perm £80k | +64% | +114% | +97% |
Outside IR35 is by far the most efficient structure. The contractor needs a £590/day rate to achieve their £80,000 target net income. If the contract is inside IR35, they would need approximately £770/day — a £180/day premium for the less tax-efficient structure. These numbers are calculated using RateCoach’s full tax model, which applies 2026/27 HMRC rates for income tax, NI, corporation tax, and dividend tax.
IR35 Impact on the Calculation
Your IR35 status fundamentally changes the calculation. Here is how each scenario affects the perm-to-contract conversion:
Outside IR35 (Limited Company)
The most tax-efficient structure. You pay corporation tax on profits (19–25%), then draw the remainder as dividends (8.75–39.35% above £500 allowance). You avoid employer NI (15%) and employee NI on dividend income. The perm-to-contract multiplier is typically 1.5–1.75× salary.
Inside IR35 (Deemed Employee)
Your entire contract value is treated as employment income. The fee-payer deducts employer NI (15%), apprenticeship levy (0.5%), income tax (20–45%), and employee NI (8–2%) before paying you. You need a significantly higher rate — the multiplier is 1.8–2.2× salary to match your take-home.
Umbrella Company
Similar to inside IR35 but with an additional umbrella margin (£25/week, ~£1,150/year). The required day rate is typically £5–£15/day higher than inside IR35 for the same net take-home. The multiplier is 1.75–2.15× salary.
Your IR35 status changes your required day rate by up to 50% for the same net take-home. Always know your IR35 status before negotiating your rate. If the contract is inside IR35, negotiate a rate uplift of 25–35% compared to the outside IR35 equivalent. Use the IR35 rate uplift calculator to find the exact figure for your situation.
Quick Reference: Salary to Day Rate Multipliers
| Permanent salary | Outside IR35 (222 days) | Inside IR35 (222 days) | Umbrella (222 days) |
|---|---|---|---|
| £40,000 | £270–£315/day | £360–£410/day | £350–£400/day |
| £55,000 | £370–£430/day | £490–£560/day | £480–£550/day |
| £70,000 | £475–£550/day | £630–£720/day | £620–£705/day |
| £80,000 | £540–£630/day | £720–£820/day | £705–£805/day |
| £100,000 | £675–£790/day | £900–£1,030/day | £880–£1,010/day |
| £120,000 | £810–£945/day | £1,080–£1,235/day | £1,055–£1,210/day |
- The basic formula: Day rate = (Target salary ÷ Working days) + overheads
- Use 220–230 working days for a realistic baseline (260 weekdays minus 25 holiday, 8 bank holidays, 5–10 sick/bench)
- Multiply your salary by 1.5–1.75 for outside IR35, 1.8–2.2 for inside IR35
- Pension contributions, holiday pay, sick pay, training, and bench time all increase the rate you need
- Your IR35 status is the single biggest factor — know it before you negotiate
- Use the interactive calculators below to find your exact rate
Calculate Your Exact Day Rate
Enter your target salary, working pattern, and IR35 status to get your personalised day rate in seconds.
Go to Day Rate Calculator →