How to Set Your Freelance Hourly Rate
The most common freelancing mistake is charging too little — usually because the rate was set by dividing an old salary by working hours. Here is the better way.
New freelancers often pick a rate by taking their old salary, dividing it by a year's working hours, and quoting that number. It feels logical. It is also a serious underpricing trap. A freelance rate has to cover things a salary quietly covered for you. This guide explains how to set a rate that actually sustains you — with the arithmetic written out, and with the Australian specifics (ABN, GST, super, tax) that generic pricing advice usually skips.
Why "Salary ÷ Hours" Fails
When you were employed, your salary was only part of what your employer spent on you. They also provided paid leave, covered business costs, contributed to your superannuation, and gave you a steady flow of work. As a freelancer, you now carry all of that yourself — out of your hourly rate. Dividing an old salary by hours ignores every one of those costs, which is why it produces a rate that is too low to live on.
Not Every Hour Is Billable
Here is the single biggest insight. A freelancer does not get paid for every working hour. A large share of your time goes to non-billable work: finding clients, sending quotes, invoicing, admin, marketing, and learning. These hours are essential, but no client pays for them directly.
If only, say, 60% of your working hours are billable, then your rate for those billable hours must also fund the other 40%. A rate set as though every hour were billable will leave you badly short.
Building the Rate Up
Instead of dividing a salary down, build the rate up from what you actually need:
- Start with your target income — what you genuinely need to earn in a year.
- Add your business costs — software, equipment, insurance, fees, workspace.
- Add a provision for time off — you have no paid leave, so your rate must cover holidays and sick days.
- Add tax and retirement — you are responsible for your own, so set money aside.
- Divide by your realistic billable hours — not total hours, only the ones clients actually pay for.
The result is usually well above the naive "salary divided by hours" figure — and that is correct, not greedy.
Build a freelance rate from your real numbers.
Try the Plantrino Hourly to Salary CalculatorA Worked Example, Start to Finish
Take a freelancer who wants to match a $75,000 employee package. First, the hours. A year has 52 weeks; allow four weeks of holidays and roughly two weeks for public holidays and sick days, leaving about 46 working weeks. At 38 hours a week that is 46 × 38 = 1,748 working hours. If 60% of those are billable — a realistic figure once admin, quoting, and marketing are counted — the year contains about 1,748 × 0.6 ≈ 1,050 billable hours.
Now the money. An employee on $75,000 also receives employer super — at the 12% rate, that is another $9,000 the freelancer must now fund personally. Add, say, $9,000 of annual business costs (software, insurance, a laptop cycle, an accountant). The total to generate is 75,000 + 9,000 + 9,000 = $93,000 before income tax even enters the picture.
Compare that with the naive method: $75,000 divided by a full-time year of roughly 1,900 hours suggests about $39 an hour. Quote $39 and every invoice quietly runs at a loss against the life you are trying to fund. The $90 figure is not ambition — it is the same package, priced honestly.
The Australian Add-Ons: ABN, GST, Super, and Tax
Freelancing in Australia comes with a few specifics that belong in your pricing from day one.
ABN. Operating as a business generally means invoicing under an Australian Business Number. Clients expect one on invoices, and running without one can complicate how clients pay you.
GST. Once your annual business turnover reaches the registration threshold — $75,000 at the time of writing; check current ATO thresholds — you must register for GST, add 10% to your invoices, and pass that 10% on to the ATO through business activity statements. Below the threshold, registering is optional. Either way, remember that GST you collect is never your money.
Super. No employer is paying super for you now. Employees receive a 12% contribution on top of wages; a freelancer who wants to arrive at retirement in the same position needs to make personal contributions of a similar size. Personal contributions can have tax advantages depending on your circumstances — check current ATO rules or ask an adviser.
Income tax. Nobody withholds tax from a freelance invoice. Every payment arrives gross, and the tax on it falls due later — after your first return, usually through quarterly PAYG instalments. The habit that saves freelancers is simple: move a fixed slice of every single payment into a separate account the day it lands, sized to your expected marginal rate, and treat that account as untouchable.
Common Mistakes to Avoid
Quoting your old hourly wage. An employee's $39 an hour and a freelancer's $39 an hour are completely different incomes once leave, super, costs, and non-billable time are counted. Never anchor on the wage number.
Spending the GST. If you are registered, the 10% on top of each invoice belongs to the ATO, not to you. Freelancers who treat it as income meet an unpleasant surprise at BAS time.
Ignoring tax until the first bill. The first year's tax bill arrives long after the income did — and it can land together with the first PAYG instalment. Setting money aside per invoice turns a crisis into a non-event.
Skipping super "just for now". A year of missed contributions is easy to rationalise and expensive to replace, because you lose the compounding as well as the contribution. Build it into the rate so it never feels optional.
Assuming you will bill 40 hours a week. Almost nobody does, sustainably. Overestimating billable hours is just underpricing wearing a disguise — be pessimistic about utilisation and let good months be a bonus.
Frequently Asked Questions
Why is my freelance rate so much higher than my old wage?
Because it must cover what an employer used to provide — leave, costs, retirement, tax handling — and because only some of your hours are billable.
What are billable hours?
Hours a client actually pays for. Admin, marketing, quoting, and learning are real work but non-billable, so your billable rate has to fund them.
Should I charge hourly or per project?
Either can work. Even with project pricing, knowing your true hourly rate tells you whether a project price is high enough to be worth your time.
Do I need an ABN to freelance in Australia?
Generally yes — if you are running a business, clients will expect an ABN on your invoices, and operating without one can complicate how they pay you. Check the ATO's guidance on whether your activity counts as a business.
When do I have to charge GST?
Registration becomes compulsory once your annual business turnover reaches the threshold — $75,000 at the time of writing (check current ATO thresholds). Below that it is optional. Once registered, you add 10% to invoices and remit it to the ATO.
How much should I set aside for tax from each invoice?
Enough to cover your expected marginal tax rate plus any GST you have collected. The right percentage depends on your income level — work it out from the current ATO tax brackets, then automate the transfer so it happens on every payment.
A sound freelance rate is built up from what you need, not divided down from an old salary. Count your billable hours honestly, add the costs an employer once carried — leave, super, tax, tools — and divide. The number may look high next to a wage; that is exactly the point. It is the number that lets freelancing actually support you, this year and at tax time.