Day Rate to Salary Guide — Is Your Day Rate Good?

Day rates are common in contracting, consulting, and freelance work. But converting a day rate to a true annual equivalent — and then to take-home pay — involves more assumptions than people realise.

How to Convert a Day Rate to Annual Salary

The standard formula is: Day rate × working days per year.

A typical UK contractor works roughly 230 billable days per year after accounting for:

• 52 weekends × 2 days = 104 days off
• 8 public (bank) holidays
• ~20–25 days holiday
• Occasional gaps between contracts (5–10 days)

This leaves around 230–235 genuinely billable days.

Day Rate Conversion Table

PAYE take-home estimates are approximate, England rates, 2026/27, no pension.

Day Rate vs Permanent Salary — What's the Real Difference?

Contractors typically earn a 20–40% premium over equivalent permanent employees to compensate for:

• No employer pension contributions
• No paid holiday or sick leave
• No redundancy pay
• Gaps between contracts
• Cost of accountancy and professional indemnity insurance
• IR35 risk

As a rule of thumb, a £300/day contract is roughly equivalent to a £65,000–£70,000 permanent roleonce employment benefits are factored in.

Limited Company vs PAYE Contractor

Operating through a limited company (PSC) can be more tax-efficient if you're outside IR35. You draw a low salary (typically around £12,570) and pay the rest as dividends, which are taxed at a lower rate than income tax. On £69,000 gross, a limited company contractor outside IR35 might take home £51,000+ compared to around £46,500 via PAYE.

However, IR35 reforms mean many contracts — particularly in the public sector and with large private sector clients — are now assessed as inside IR35, removing the tax advantage.