How to calculate your hourly rate as a freelancer

How do you calculate your hourly rate?

The formula is short: (income + tax + pension + insurance + costs) ÷ billable hours. The work is in filling it in honestly. Walk through these steps:

1. Work out what you privately need per month and multiply by 12.
2. Set aside money for income tax and the income-dependent healthcare contribution (Zvw).
3. Set aside money for your pension. As a freelancer you build that up yourself.
4. Count an amount for illness and disability, as insurance or as a buffer.
5. Add up your business costs: laptop, software, phone, insurance, training, travel.
6. Work out how many hours per year you can really bill.
7. Divide the total by those hours.

How many billable hours do you have per year?

The Chamber of Commerce (KvK) works with a five-day week of 8 hours. Take off 30 days of holidays and public holidays and you keep 230 working days. That is 1,840 hours.

You cannot bill all of those hours. You spend time finding clients, writing quotes, doing your accounts and learning. According to the KvK, for a starter it is good if you can bill 50 to 60 percent of those hours. Also subtract days for illness.

A worked example with real figures

Fatima is a copywriter. She wants to take home €3,000 a month for private use. The other figures are her own estimates. For your tax, look at your own situation.

Fatima rounds to a rate she likes to say out loud. But she now knows she cannot go below €63.43. Work it out yourself with the hourly rate calculator.

How much should you set aside for tax?

That depends on your profit and your deductions. If you meet the hours criterion of 1,225 hours (urencriterium), you can claim the self-employed deduction (zelfstandigenaftrek) of €1,200. After that, another 12.7% SME profit exemption comes off your profit. A provisional assessment (voorlopige aanslag) helps you pay the tax in monthly amounts.

Note. Your hours count towards the hours criterion (urencriterium), including the hours you do not bill. So log all your hours, not only the billable ones.

Is VAT included in your hourly rate?

No. You usually quote rates to business clients excluding VAT. Then 21% comes on top, or 9% for some services. That VAT is not yours: you pass it on. If you work for private individuals, quote the amount including VAT. With the small business scheme (KOR) you charge no VAT.