How to properly convert a contractor day rate into an annual-equivalent figure, accounting for the non-billable time a permanent salary doesn’t have to think about.
The naive calculation, and why it’s wrong
Multiplying your day rate by 220 working days a year overstates what you’ll actually earn — it assumes zero time between contracts, no holiday, and no sick days, none of which is realistic for most contractors.
A more honest calculation
Subtract genuine gaps between contracts (even successful contractors typically have some), unpaid holiday (since contractors don’t get statutory paid leave the way employees do), and a buffer for sick days. A commonly used realistic figure is 200–220 billable days rather than the full working year.
Why this matters for comparing offers
A day rate that looks higher than an equivalent permanent salary can end up lower once realistic non-billable time and the lack of employer pension contributions, sick pay, and holiday pay are factored in — worth doing the maths properly before assuming contracting is automatically the better-paid option.
Work out your realistic annual equivalent with the Payslp contractor calculator.
A worked example with realistic assumptions
At a £500 day rate with a realistic 210 billable days a year (accounting for gaps, holiday, and sick days), the annualised equivalent is £105,000 — notably lower than the naive £500 × 260 working days calculation of £130,000, a genuine £25,000 difference purely from realistic day-count assumptions.
Frequently asked questions
How many billable days should I actually assume?
This varies by experience and sector, but 200–220 days is a commonly used, reasonably conservative planning assumption for an established contractor.
Should I factor in pension separately?
Yes — since contracting typically doesn’t include an employer pension contribution the way permanent employment does, worth building your own pension savings into your day rate calculation explicitly.