Comparing permanent salary vs contract day rate in the UK
Who this calculator is for
This contractor vs permanent salary calculator is for UK professionals who need to compare a permanent salary package with a contract day rate or hourly rate. It is especially useful for IT contractors, consultants, project specialists and skilled workers moving between permanent employment and contracting.
- Perm to contract: Check whether a proposed contract rate is high enough to replace your salary, benefits and paid leave.
- Contract to perm: Estimate the permanent salary package needed to match your current contract income.
- Rate negotiation: Use the break-even and target rate figures to support a clearer conversation with recruiters, clients or employers.
- Inside vs outside IR35: See how IR35 status changes the effective value of a contract offer.
What this calculator compares
This is not a simple salary converter. A permanent job and a contract role are structured differently, so the calculator converts both options into comparable annual, daily and hourly values.
- Permanent roles: Salary, employer pension contribution, bonus and benefits are included to estimate the total package value.
- Contract roles: Your day rate or hourly rate is converted into annual contract income using your billable days assumption.
- IR35 adjustment: Inside IR35 contracts are adjusted for estimated employer costs. Outside IR35 contracts deduct business running costs instead.
- Decision benchmarks: The calculator shows the rate needed to match your permanent package and the target rate needed to create a contractor premium.
Why your permanent package is worth more than salary alone
A permanent salary of £80,000 is not always just £80,000 in value. Employer pension contributions, bonus potential, private medical cover, paid holiday and other benefits can make the full package materially higher than the base salary.
That is why a contract day rate should not be compared with salary alone. The better comparison is contract revenue against your full permanent package, adjusted for unpaid time, IR35 status and business costs.
How the 220-day contract model works
Contractors rarely bill every weekday of the year. The calculator defaults to 220 billable days as a practical planning assumption:
- 260 weekdays in a typical working year.
- Less holiday and bank holidays that would normally be paid in a permanent role.
- Less sick days, training, admin and bench time between contracts.
You can change the billable days field if your expected working pattern is more or less conservative.
Inside IR35 vs outside IR35
IR35 status is one of the biggest differences between headline contract income and effective contract value.
- Outside IR35: You usually operate through a limited company as a business-to-business supplier. The calculator deducts annual business costs such as accountancy, insurance and software from your contract revenue. You may also want to compare the result with our outside IR35 calculator.
- Inside IR35: The contract rate is usually treated as an assignment rate. Employer National Insurance and Apprenticeship Levy are typically accounted for before personal PAYE deductions. This calculator uses a simplified employer-cost adjustment, so it should not be treated as a full umbrella payslip calculator. You can also use our National Insurance calculator for broader NI estimates.
Why a contractor premium matters
A contract role normally needs to pay more than a like-for-like permanent package because the contractor carries more risk. There may be unpaid gaps between contracts, no paid sick leave, no employer-funded benefits and more responsibility for insurance, accountancy and administration.
As a planning benchmark, many contractors look for a premium of around 20% to 30% above the equivalent permanent package. The calculator shows both the break-even rate and a target rate with a 30% premium.
How to use the results
Use the result as a decision benchmark, not as financial advice. A higher contract rate may still be unattractive if the role is short, payment terms are poor, IR35 treatment is unfavourable, or the market is weak. A lower permanent salary may still be acceptable if the role offers strong stability, pension, career progression or benefits.
- Use the break-even rate to understand the minimum contract rate needed to match your permanent package.
- Use the target rate to understand the rate that may better reflect contractor risk.
- Adjust billable days to model realistic downtime between contracts.
- Compare inside IR35 and outside IR35 scenarios before accepting an offer.
When to use this calculator
- Before accepting a contract offer
- Before leaving a permanent role
- When negotiating a contract day rate
- When comparing an inside IR35 role with an outside IR35 role
- When considering a return from contracting to permanent employment
Make a clearer contract vs permanent decision
Switching between permanent employment and contracting is not only about headline income. Use the calculator to test different assumptions, compare scenarios and identify the rate or salary package that makes commercial sense for you.