You are not selling 261 days
The usual way to set a day rate is to take the salary you want, divide it by the working days in a year, and round it up a bit. It is quick, it feels reasonable, and it undercharges by roughly a quarter on every day you work.
There are 261 weekdays in a year. You will not sell them. Take off holiday, because you are going to take some whether it is paid or not. Take off the days you are ill. Take off training and travel that nobody is paying for. That is maybe 225 left.
Then take off the part nobody counts: the quoting, the invoicing, the chasing, the buying, the van being serviced, the calls that never turn into work. Fifteen to twenty-five per cent of what remains, and it is real work that produces no invoice. Now you are at about 190 billable days.
190 against 261. Divide by the wrong one and every single day you work is priced 27% under what you needed it to be, all year, quietly.
The overheads have to go in before the division
This is the second half of the same mistake. As an employee, somebody else paid for your holiday, your sick days, your pension, your tools, your phone, your insurance, your training and the accountant. As a contractor you pay for all of it out of the same rate.
So they belong inside the number you divide, not on a wish list afterwards. Add your target income to your yearly overheads first, and that total is what has to be invoiced. On a £50,000 target with £6,000 of overheads you are not selling £50,000 of work, you are selling £56,000, across those 190 days.
There is a useful sanity check hiding in that: every £1,000 of overhead adds roughly £5 to your day rate. If a piece of kit costs £2,000 a year to run, it needs £10 a day of rate behind it, forever, before it has paid for itself.
Running it backwards, which is the more common question
Usually the rate is not yours to set. Somebody offers a number and the real question is what that number comes to over a year. Same arithmetic, run the other way: multiply by billable days, take off the overheads, and see what is actually left.
That is where a tempting rate stops being tempting. A figure that looks fine against 261 days looks very different against 190, and the difference is not marginal, it is the holiday you were planning to take.
What a year off looks like depends where you are
A contractor funds their own time off everywhere. What changes is the comparison a client makes in their head, because they are measuring your rate against what a year of employment looks like where they are.
- UK: 5.6 weeks statutory, 28 days for a five day week, and bank holidays may sit inside that rather than on top.
- Australia: four weeks under the National Employment Standards, with public holidays on top, varying by state.
- Canada: set provincially, commonly two weeks to start and rising with service.
- United States: no federal statutory minimum paid annual leave at all. Eleven federal holidays exist, and private employers are not required to pay for them.
That last one surprises people outside the US and matters when you are pricing across a border: the year a client is picturing may have several more working days in it than the year you are picturing, and the gap comes straight out of your rate if nobody says so.
Common questions
How do I work out my day rate?
Add the income you want to your business overheads, then divide by your BILLABLE days, not by the working days in a year. There are 261 weekdays. Take off holiday, illness and the days that go on quoting, invoicing and buying, and you are selling nearer 190. Dividing by 261 undercharges by about a quarter.
How many billable days are there in a year?
Far fewer than people assume. Start at 261 weekdays, take off around 28 days holiday and a few for illness, and you have about 225 available. Then take off the fifteen to twenty-five per cent that goes on running the business rather than doing paid work, and you are at roughly 190.
Why is my day rate not my old salary divided by working days?
Two reasons, and they stack. You are selling fewer days than a salaried year contains, and you are now paying for everything an employer used to absorb: holiday, sick pay, pension, tools, insurance, the accountant, training. Both have to be in the sum before you divide, not hoped for afterwards.
What counts as non-billable time?
Quoting, invoicing, chasing money, buying materials, van maintenance, training, and every phone call that does not turn into work. Fifteen to twenty-five per cent of available days is typical, and it is the number most people leave out of the calculation entirely.
Should overheads go in the day rate or on top of the job?
In the rate. Anything you bill separately can be taken out again, but the costs that exist whether or not you win a particular job have to be spread across the days you actually sell. Leave them out and you have priced to cover your time and nothing else.
Does paid holiday differ by country?
Considerably, and it changes what a client thinks a year looks like. The UK has 5.6 weeks statutory. Australia has four weeks plus public holidays. Canada is provincial, commonly two weeks rising with service. The United States has no federal statutory minimum paid annual leave at all. A contractor funds their own everywhere, but the comparison a client makes is against local normal.