Salary vs Hourly: Find the Break-Even Point
When does a salaried offer beat an hourly contract—after benefits and billable time? Use this method.
1) Convert salary to hourly
Hourly = Annual ÷ (hours/week × 52). $65,000 at 40 h/week ≈ $31.25/hr.
2) Account for paid time
Salaries usually include paid holidays/PTO; hourly often doesn’t.
3) Add benefits value
- 401(k) match (3–6%)
- Health coverage (employer-paid portion)
- Perks/stipends
4) Overtime & flexibility
Hourly may include time-and-a-half beyond 40; salary may expect extra hours.
5) Break-even
Hourly target = (Salary + benefits) ÷ billable hours. With 1,800 billables, $65k + $3k benefits → $37.78/hr.
Billing model matters
For hourly/contract roles, use conservative billable hours (1,600–1,800) to price in holidays, admin, and prospecting. Add margin for unpaid downtime.
Sensitivity check
Test ±10% around your rate and billable hours to understand best/worst case. Choose a rate that still works in a slower quarter.
Hidden costs & buffers
- Unpaid admin time (invoicing, proposals, travel).
- Late invoice risk—build a buffer into your rate.
- Insurance, software, and equipment refresh.
Example break‑even table
- Target $80,000, benefits value $4,000, 1,700 billables → ≈ $49.41/hr
- Target $110,000, benefits $6,500, 1,600 billables → ≈ $72.81/hr
Contract risk pricing
Hourly/contract income is less predictable. Add a risk premium to the rate to cover unpaid gaps between projects and late payments.
Billable hours calculator
- Weeks/year: 52
- Minus vacation/holidays: 4–6 weeks
- Minus admin/prospecting: 4–6 weeks (partial)
- Billables: often 1,600–1,800 hours
Negotiation guardrails
Quote a range with clear inclusions/exclusions. If you discount, narrow the scope or reduce turnaround time rather than cutting rate.
Billable‑hours ladder
Set conservative, expected, and best‑case billables (e.g., 1,600 / 1,720 / 1,840). Price your core rate off the conservative tier, not best‑case.
Packaging your rate
- Discovery package (fixed price) before hourly work.
- Blocks (e.g., 10‑hour packs) with use‑by dates.
- Maintenance retainers for ongoing support.
Reality check
Compare your target hourly to peers in similar markets/skills. If far above, adjust scope or specialize; if below, revisit assumptions or raise.
Pipeline & utilization math
Track lead-to-close rates to forecast billables. If you need 20 hours/week billable, reserve enough time for outreach to sustain that target.
Insurance & risk adders
- Liability & professional insurance premiums
- Hardware refresh and backup equipment
- Late-payment buffer in cash reserves
Escalation ladder for pricing
Start with a scope-limited discovery; graduate to hourly blocks; then offer a retainer for stable, ongoing support.