Whether you’re moving from permanent employment to contracting or comparing contract offers with permanent roles, understanding the day rate to salary conversion is essential. The headline number rarely tells the full story.
Basic Day Rate to Salary Formula
The simplest conversion:
Annual equivalent = Day rate × Working days per year
The key variable is working days. Here’s what most contractors use:
| Scenario | Working Days | Basis |
|---|---|---|
| Maximum (optimistic) | 252 | 365 minus weekends and 8 bank holidays |
| Realistic (industry standard) | 220 | Allows for 25 days holiday + 7 sick/admin days |
| Conservative | 200 | Allows for gaps between contracts |
| First-year estimate | 180-200 | Ramp-up time, finding first contract |
Using 220 days:
| Day Rate | Annual Equivalent |
|---|---|
| £250 | £55,000 |
| £300 | £66,000 |
| £350 | £77,000 |
| £400 | £88,000 |
| £450 | £99,000 |
| £500 | £110,000 |
| £550 | £121,000 |
| £600 | £132,000 |
| £650 | £143,000 |
| £750 | £165,000 |
Salary to Day Rate Conversion
Going the other direction, divide your target salary by working days:
Day rate = Target annual income ÷ 220
But this doesn’t account for employer costs that permanent employees receive for free. A fair comparison needs adjustments.
The True Cost of Employment Comparison
A permanent employee on £60,000 actually costs their employer roughly:
| Component | Value |
|---|---|
| Base salary | £60,000 |
| Employer NI (13.8% above £9,100) | £7,024 |
| Employer pension (5-8%) | £3,000–£4,800 |
| Holiday pay (25 days + 8 bank holidays) | Included in salary |
| Sick pay, maternity/paternity | Included |
| Training budget | £500–£2,000 |
| Equipment, office space | Variable |
| Total employer cost | ~£72,000–£75,000 |
To truly match a £60,000 permanent salary, your day rate needs to cover the equivalent of £72,000–£75,000 in total employment value.
Equivalent day rate: £72,000 ÷ 220 = approximately £327/day
Inside vs Outside IR35 — Take-Home Comparison
Your IR35 status dramatically affects how much you keep from each day rate.
£400/Day Outside IR35 (Ltd Company)
Operating through your own limited company with a tax-efficient salary/dividend split:
| Item | Amount |
|---|---|
| Gross annual income (220 days) | £88,000 |
| Allowable expenses (accountant, insurance, travel) | -£5,000 |
| Company profit | £83,000 |
| Director salary (optimal level) | £12,570 |
| Corporation tax (25% on £70,430) | -£17,608 |
| Retained profit for dividends | £52,822 |
| Dividend tax (8.75% on first £37,700; 33.75% above) | -£8,393 |
| Employee NI on salary | £0 (below threshold) |
| Approximate take-home | £56,999 |
| Effective tax rate | ~35% |
£400/Day Inside IR35 (Umbrella Company)
Through an umbrella company, you’re taxed like an employee:
| Item | Amount |
|---|---|
| Gross annual income (220 days) | £88,000 |
| Umbrella margin | -£600 |
| Employer NI (deducted from your pay) | -£10,888 |
| Apprenticeship levy (0.5%) | -£440 |
| Gross taxable pay | £76,072 |
| Income Tax (20% + 40%) | -£17,498 |
| Employee NI (8% + 2%) | -£4,862 |
| Approximate take-home | £53,712 |
| Effective tax rate | ~39% |
Difference: ~£3,300/year more outside IR35 at this day rate, with the gap widening at higher rates.
£600/Day Comparison
| Outside IR35 | Inside IR35 | |
|---|---|---|
| Gross (220 days) | £132,000 | £132,000 |
| Approximate take-home | £82,000 | £74,500 |
| Effective tax rate | ~38% | ~44% |
| Difference | +£7,500 | — |
Adjustments Contractors Must Budget For
Your day rate must cover costs that permanent employees get for free:
Non-Working Days
- 25 days holiday — no pay for holidays (already factored in 220-day calculation)
- Sick days — no statutory sick pay as a Ltd company director
- Gaps between contracts — average 2–6 weeks per year
Business Costs
| Cost | Annual Estimate |
|---|---|
| Accountant | £1,200–£2,000 |
| Professional indemnity insurance | £200–£600 |
| Public liability insurance | £100–£300 |
| IR35 contract review | £200–£400 per contract |
| Business bank account | £60–£180 |
| Software & tools | £200–£500 |
| Pension contributions (self-funded) | 5–15% of income |
Pension Gap
Permanent employees typically receive 3–8% employer pension contributions on top of salary. As a contractor, this comes from your day rate. Budget at least 10% of gross income for pension to match permanent pension benefits.
Quick Reference — Day Rate Equivalents
This table shows the permanent salary you’d need to match each day rate’s take-home (outside IR35, after all costs):
| Day Rate | Gross (220 days) | Take-Home (Outside IR35) | Equivalent Perm Salary |
|---|---|---|---|
| £250 | £55,000 | ~£38,000 | ~£42,000 |
| £300 | £66,000 | ~£44,500 | ~£50,000 |
| £350 | £77,000 | ~£51,000 | ~£57,000 |
| £400 | £88,000 | ~£57,000 | ~£63,000 |
| £450 | £99,000 | ~£63,000 | ~£70,000 |
| £500 | £110,000 | ~£69,000 | ~£78,000 |
| £600 | £132,000 | ~£82,000 | ~£96,000 |
| £750 | £165,000 | ~£99,000 | ~£120,000 |
Factors That Affect Your Actual Day Rate
Industry and Demand
Day rates vary enormously by sector:
| Sector | Typical Range |
|---|---|
| IT/Tech | £350–£750 |
| Finance/Banking | £400–£800 |
| Engineering | £300–£600 |
| Management consulting | £500–£1,200 |
| Project management | £350–£600 |
| Healthcare (locum) | £300–£700 |
Location
London rates are typically 15–25% higher than regional rates. Remote work has narrowed this gap since 2020, but London-based contracts still command a premium.
Contract Length
- Short contracts (1–3 months) — command higher rates but more gaps
- Long contracts (6–12 months) — slightly lower rates but more stability and fewer gaps
- Rolling contracts — best of both worlds but with IR35 scrutiny
Making the Decision — Contract vs Permanent
Before jumping to contracting, ensure your day rate covers:
- Equivalent salary — match or beat your permanent take-home
- Lost benefits — pension, holiday pay, sick pay, life insurance, private medical
- Business costs — accountant, insurance, admin time
- Risk premium — contract termination at short notice, gaps between contracts
- Career development — no employer-funded training or progression
A common rule of thumb: your day rate should be at least 40-50% higher than the permanent salary daily equivalent to make contracting worthwhile after costs and risk.
For a £60,000 permanent role: £60,000 ÷ 220 = £273/day. Add 50%: minimum £410/day to consider contracting.