Salary vs day rate: how to compare permanent and contract pay
Multiplying a day rate by working days gives a useful gross annualised figure, but it does not make a contract role financially equivalent to permanent employment. Benefits, unpaid time and tax structure matter.
Start with realistic billable days
A £400 day rate at 5 days a week for 46 working weeks annualises to £92,000 of gross billings. Using 52 weeks would assume no unpaid holiday, gaps, sickness or non-billable time, so it can overstate a realistic comparison.
Permanent benefits have value
Employer pension contributions, paid annual leave, sick pay, bonus schemes, life assurance, private medical insurance and training can all form part of permanent compensation. A day rate generally needs to be higher than salary divided by working days to compensate for benefits and risk.
Employment status and tax structure
Contractors can work through different legal and tax arrangements, including umbrella employment or a company, and off-payroll working rules may apply. The Netly Pay day-rate tool deliberately avoids pretending that one tax treatment fits every contractor.
Use the calculator correctly
Use the day-rate tool to annualise the commercial rate, then compare that gross figure with permanent salary and benefits. For a precise contract take-home calculation, use advice or software designed for the actual engagement structure.
Worked comparison: £400 a day
At £400 a day for 5 days a week and 46 paid working weeks, the simple gross equivalent is £92,000. That is not the same as a £92,000 permanent salary. A contractor may need to fund unpaid holiday, gaps between contracts, insurance, professional costs and pension contributions, while an employee may receive paid leave, employer pension contributions, sick pay and other benefits.
Try more than one working-weeks assumption. At the same £400 day rate, 42 billable weeks produces £84,000 whereas 46 produces £92,000. Utilisation can matter as much as the headline day rate.
Employment status changes the tax question
This tool converts gross figures; it does not decide whether work is inside or outside off-payroll working rules, whether you are employed, self-employed or operating through a company, or what business expenses are deductible. Those questions can materially change the comparison.