Compare the annual cost of your contract to the client with the cost of employing someone permanently, including Employer National Insurance, pension contributions and other benefits.
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it compares the gross amount billed for your contract with the total cost of employing someone permanently. It does not calculate contractor take-home pay, or make any assumptions about salary, dividends, Corporation Tax or IR35.
How does the day rate to salary calculation work?
This is an employer cost comparison, rather than a comparison of personal take-home pay.
For example, a contractor billing £500 per day for 220 days costs the client £110,000 over the year, before considering any other costs the client may incur.
If the same business employed someone permanently, its cost would be more than the employee’s salary. It would normally also pay Employer National Insurance and an employer pension contribution, as well as any other benefits provided.
The calculator therefore works backwards from the £110,000 contract cost to find a permanent salary which, once Employer NI, pension contributions and any other benefits are added, produces roughly the same overall cost.
It does not assume the contractor personally receives the £110,000. How much an outside IR35 contractor ultimately keeps will depend on company expenses, Corporation Tax and how profits are extracted from the company. An inside IR35 contract is taxed differently again.
For more on what determines contractor rates, see our guide to IT contract rate factors.
How many billable days should you use?
There are around 260 weekdays in a typical year, but contractors rarely bill for every one of them.
You need to allow for things such as:
- annual leave and bank holidays
- sickness
- training and administration
- time spent finding your next contract
- gaps between assignments
We’ve used 220 billable days as the default, but you should change this to reflect your own circumstances.
If you expect to bill for 200 days at £500 per day, for example, the annual contract cost is £100,000. At 230 days, it rises to £115,000.
Employer National Insurance
A permanent employee costs more than their headline salary because the employer normally has to pay Employer National Insurance as well.
For 2026/27, the standard Employer NI rate is 15% on earnings above the £5,000 annual Secondary Threshold.
So, before considering pensions or other benefits, a £60,000 employee generates £8,250 of Employer NI.
Read our National Insurance guide, or see the current HMRC National Insurance rates and thresholds.
Why include the employer pension?
A permanent salary often comes with an employer-funded workplace pension, so this forms part of the value of the overall package.
We’ve used 3% as the default employer contribution, in line with the minimum employer contribution under the standard automatic enrolment rules. You can change this percentage to match the permanent role you are comparing.
For simplicity, the calculator applies the percentage to the full salary rather than the qualifying earnings band used for statutory minimum contributions.
See the GOV.UK workplace pension guidance for the detailed rules.
What should you include as other benefits?
The value of a permanent package can go beyond salary and pension.
You might want to include the annual value of:
- private medical insurance
- life insurance
- car allowances
- bonuses you can reasonably expect to receive
- other employer-funded benefits
Don’t feel you have to put a number in this field. If you’re simply comparing a contract rate with a salary and employer pension, leave it at zero.
Does the calculator include Employment Allowance?
No. The Employment Allowance can reduce an eligible employer’s overall Employer NI bill, but it is an allowance for the business rather than a benefit attached to one particular employee.
Whether an employer qualifies, and how much allowance remains available, therefore depends on the employer’s circumstances.
We’ve left it out of this comparison rather than assuming that some or all of the allowance should be allocated to the permanent role.
What about IR35?
IR35 is not included in the salary-equivalent figure.
This calculator compares the commercial cost of a contract with the cost of employing someone permanently. It does not tell you how much of either amount you would personally take home.
An inside IR35 contract is taxed very differently from income earned through your own limited company on an outside IR35 contract.
Read our guide to IR35 and the off-payroll rules for an overview.
Under the off-payroll rules, where an engagement is inside IR35, the fee-payer will normally deduct Income Tax and employee National Insurance before paying the contractor’s company. The fee-payer is also responsible for Employer NI where the rules apply.
HMRC explains the rules in its off-payroll working guidance.
Contract rate versus salary: what else should you consider?
The numbers are only part of the decision.
Permanent employees usually receive paid annual leave and may have sick pay, redundancy rights, employer-funded training and other benefits. Contractors generally fund periods away from work themselves and carry the risk of gaps between contracts.
On the other hand, contracting may offer a higher headline rate, greater flexibility and the ability to move between clients and projects.
The right comparison is therefore not simply:
day rate × working days = salary.
A better starting point is to compare the value of the whole package, then consider tax treatment and the practical differences between permanent employment and contracting separately.
Assumptions and notes
- Annual contract cost is your day rate multiplied by the number of billable days entered. This is the gross amount billed for the contract, not the contractor’s personal income or take-home pay.
- The calculator uses the standard 2026/27 Employer National Insurance rate of 15% and the £5,000 Secondary Threshold.
- It assumes a standard National Insurance category A permanent employee.
- Employment Allowance is not included.
- The employer pension percentage is applied to the employee’s full gross salary.
- Any other permanent benefits you enter are added at their annual value.
- The calculator does not include Income Tax, employee National Insurance, Corporation Tax or dividend tax.
- It does not calculate inside or outside IR35 take-home pay.
- Your actual number of billable days may be higher or lower than the 220-day default.
This calculator is intended as a broad comparison of contract costs and permanent employment costs, rather than a personal tax or take-home pay calculation.