Day Rate to Salary: How to Convert a Contract Rate (2025/26)

Last updated June 2026

“I’m on £500 a day — what salary is that?” It’s one of the most common questions in contracting, and the answer is more nuanced than multiplying by a number. This guide shows how to convert a day rate into a meaningful annual figure, and why a contract rate is not directly comparable to a permanent salary.

The naive calculation

The simplest conversion assumes you work every weekday:

Day rate × working days per year ≈ gross annual contract value

There are about 260 weekdays in a year, but no contractor bills all of them. After holidays, bank holidays, illness and gaps between contracts, 220 billable days is a realistic full-year assumption, and many contractors bill fewer.

So £500/day × 220 days = £110,000 of gross contract value. That’s the headline number — but it is not your salary equivalent, for two reasons explained below.

Why a day rate isn’t a salary

1. Contractors fund their own everything. A permanent salary quietly includes paid holiday, employer pension contributions, sick pay, employer’s National Insurance, training and job security. A contractor’s day rate has to cover all of that out of the same figure. That’s why contract rates look higher than equivalent salaries — they have to.

2. The tax treatment differs. How that £110,000 turns into take-home depends entirely on your IR35 status and how you’re paid. Outside IR35 through a limited company, you’ll keep more of it via salary-and-dividends. Inside IR35 through an umbrella, you’ll keep less because it’s taxed as employment income with employer’s National Insurance deducted from the rate.

A fairer comparison

To compare a contract to a permanent role honestly, work backwards from take-home pay, not gross figures:

  1. Calculate your likely annual take-home from the day rate (our calculator does this for both IR35 routes).
  2. Compare it to the take-home of the permanent salary you’re weighing up — not its headline figure.
  3. Then mentally add back the value of the permanent role’s benefits: pension, paid holiday, sick pay and stability.

Only after those adjustments are the two genuinely comparable. A contractor on £500/day might take home more than a £90,000 employee, but once you add the employee’s pension and security, the gap narrows.

Worked example

A £500/day contractor working 220 days has £110,000 of gross contract value. Depending on IR35 status and pay structure, take-home might land somewhere in the region of £65,000–£72,000 for 2025/26 — the exact figure depends on salary strategy, expenses and the umbrella margin. To match that take-home as a permanent employee, you’d need a salary well into six figures plus benefits, because employees lose less to employer’s NI and gain paid time off.

Converting in the other direction

If you have a target salary and want to know the day rate to ask for, a rough rule used by many contractors is:

Desired salary ÷ 1,000 ≈ minimum day rate

So a £60,000-equivalent ambition suggests roughly £600/day as a starting point — higher if you want to genuinely come out ahead after accounting for lost benefits and billing gaps. It’s a blunt rule, but a useful sanity check before you negotiate.

The takeaway

Don’t compare a day rate to a salary by gross figures — it flatters the contract. Convert both to take-home pay, then add back the benefits a permanent role includes. Used that way, the day-rate-to-salary question becomes a genuinely useful decision tool rather than a misleading headline.

Figures are illustrative estimates for the 2025/26 tax year (rest of UK), not personal advice.