Day rate vs salary — what to compare
The naive comparison is to multiply a day rate by 260 working days and treat that as the equivalent salary. That's misleading for two reasons. First, contractors don't bill 260 days a year. Holidays, sick days, gaps between engagements, and non-billable admin time all come out of your number. A realistic billable year is between 220 and 235 days — using 46 weeks at 5 days per week (230 days) is a widely accepted default.
Second, a day rate is paid by the client as a single figure with no employer overhead on top. A permanent salary is paid by the employer on top of 15% employer National Insurance on earnings above £5,000, plus a pension contribution of typically 3–5%. For the employer to match a contract cost of £100k, they only need to offer a permanent salary of around £85k. Put another way, a £500/day × 230-day contract (£115,000) is roughly equivalent to a £98k–£100k perm role once you add employer overheads.
This calculator lets you toggle between the two views: the raw annual contract figure, and the perm-salary-plus-overheads figure that gives an employer the same total cost. The take-home columns then show where the contractor-vs-perm numbers actually land after PAYE and NI — assuming an outside-IR35 or umbrella PAYE model for apples-to-apples comparison.
Hidden costs of contracting
A raw day rate hides several costs that a permanent salary absorbs. Before comparing take-home, price in:
- No paid holidays. 28 days at your day rate is around £14,000 of lost revenue on a £500/day contract.
- No employer pension. A perm job contributing 5% on a £70k salary is £3,500 a year you don't get.
- No sick pay, maternity, paternity, or redundancy. Contractors carry this risk themselves.
- Professional indemnity + public liability insurance. Usually £300–£600 a year.
- Accountancy fees. £100–£130 per month for a limited-company contractor, or a weekly margin for umbrella.
- IR35 risk. An inside-IR35 determination can reduce take-home by 20–30% overnight. Budget for contracts that might flip status.
A good rule of thumb is that a contract day rate needs to be 15–25% higher than the like-for-like perm salary equivalent just to compensate for these factors.