Calculating Your Net Hourly Rate: A Beginner’s Guide for EU Contractors

/ Salary & Compensation Insights, Technology Hub

So, you’ve decided to become an IT contractor. You see a contract for jobs in Poland at €70/hour. You’re currently an employee earning €30/hour. You’re about to be rich!

…Not so fast.

That €70 is your gross B2B (Business-to-Business) rate. Your €30 was your gross employee (UoP) salary. They are not the same thing.

As an employee, your company pays your taxes, your social security, and your pension contributions for you. As a B2B contractor, you are now a company. That €70 is your “revenue,” not your “salary.” You have to pay all your own costs from that amount.

This is the most critical calculation you will ever make as a freelancer.

The Employee (UoP) vs. The Contractor (B2B)

When a staffing agency get-talent.eu in the EU offers you two options, this is the difference:

  • Employee (UoP – Contract of Employment): You get a “gross” salary. Your employer deducts income tax and social contributions. You get “net” (take-home) pay. You also get paid vacation, paid sick leave, and pension contributions.
  • Contractor (B2B): You are a self-employed business. You send an invoice (e.g., 160 hours * €70/hour = €11,200). You get paid €11,200. Now, you must pay your own social security, taxes, and accounting fees. You get no paid vacation or sick leave.

How to Calculate Your Real Net Rate (A Simple Guide)

So, what is that €70/hour really worth? Let’s find your “net hourly rate.”

Step 1: Calculate Your “Unpaid” Time

You don’t work 52 weeks a year. You take time off. As a contractor, this time is unpaid.

  • Vacation (4 weeks): 20 days
  • Public Holidays (approx.): 10 days
  • Sick Days (be realistic): 5 days
  • Admin/Finding work: 5 days
  • Total Unpaid Days: 40 days
  • Total Paid Days: 260 (workdays) – 40 = 220 days
  • Your “Billing Factor”: 220 / 260 = 84.6%. You can only bill for 84.6% of the year.

Step 2: Calculate Your Costs

You are a business, and businesses have costs.

  • Social Security (ZUS, etc.): This is your biggest cost. As a new business in Poland, you get a “Small ZUS” relief, but it will grow. Let’s budget 15% of your income.
  • Income Tax: This depends on your country (e.g., flat tax in Hungary, progressive in Germany). Let’s budget 20% (you can deduct costs!).
  • Accounting: You need an accountant: €100/month.
  • Other: Laptop, software, etc.: €100/month.
  • Total Costs: 35% in taxes + €2,400/year in fixed costs.

Step 3: The Real Math

Let’s use our €70/hour B2B rate.

  • Gross Annual Revenue: €70/hour * 8 hours/day * 220 days = €123,200
  • Business Costs (Fixed): – €2,400 (Accounting, etc.)
  • Taxable Income: €120,800
  • Taxes & Social Security (35%): – €42,280
  • Your NET Annual Take-Home: €78,520

This is your “salary” from your own company.

The “Net Hourly Rate”

Now, what is your real net hourly rate? We need to compare it to an employee salary.

  • Your Net Take-Home: €78,520
  • Total Possible Work Hours in a year (40h/week): 2,080 hours
  • Your Net Hourly Rate: €78,520 / 2,080 = €37.75 per hour

Conclusion: Your €70/hour B2B rate is “like” being an employee earning €37.75/hour net, but with no paid vacation, no sick pay, and the stress of running a business.

It’s still higher than the €30/hour gross you were earning, but it’s not the €70/hour you dreamed of. Always do this math before you sign.

References

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