Comparing a day rate with a salaried role

Scenario

You have two options on the table. Option A is a permanent salaried role paying £65,000 per year. Option B is a contract role paying £400 per day. The day rate looks higher in headline gross terms, but the comparison is not straightforward because the two packages have different risk profiles, different benefit structures, and different effective working patterns.

Option A: Salaried role at £65,000

Using 2025-26 rates (personal allowance £12,570; basic rate 20%; higher rate 40%):

• Taxable income: £65,000 − £12,570 = £52,430
• Basic rate: £37,700 × 20% = £7,540
• Higher rate: (£52,430 − £37,700) × 40% = £14,730 × 40% = £5,892
• Income tax: £13,432
• Employee NI: £3,016 + (£65,000 − £50,270) × 2% = £3,016 + £295 = £3,311
• Take-home: £48,257/year (£4,021/month)

This salary also includes: - 28 days paid holiday (worth ~£7,000 in income equivalent at this salary level) - Employer pension contribution (typically 3–10% of salary) - Statutory sick pay and, usually, contractual sick pay on top - Employment protections and continuity of income

Option B: Day rate at £400

At 220 billable days per year (after holidays, bank holidays, and contract gaps):

• Gross annual: £400 × 220 = £88,000

At 200 billable days (more conservative, allowing for gaps between contracts and admin time):

• Gross annual: £400 × 200 = £80,000

PAYE comparison at £80,000 (illustration only — not the contractor's actual tax):

• Taxable income: £80,000 − £12,570 = £67,430
• Basic rate: £37,700 × 20% = £7,540
• Higher rate: (£67,430 − £37,700) × 40% = £29,730 × 40% = £11,892
• Income tax: £19,432
• Employee NI: £3,016 + (£80,000 − £50,270) × 2% = £3,016 + £595 = £3,611
• PAYE take-home equivalent: £56,957/year

Side-by-side comparison

| | Salaried £65k | Day rate £400 (200 days) | Day rate £400 (220 days) | |---|---|---|---| | Gross annual | £65,000 | £80,000 | £88,000 | | Income tax (PAYE basis) | £13,432 | £19,432 | £23,032 | | Employee NI | £3,311 | £3,611 | £3,811 | | PAYE take-home | £48,257 | £56,957 | £61,157 | | Monthly equivalent | £4,021 | £4,746 | £5,097 | | Holiday pay included | Yes (28 days) | No | No | | Employer pension | Yes | No | No | | Sick pay | Yes | No | No |

The true gap is smaller than it looks

The £8,700 difference in take-home between the salaried role (£48,257) and the conservative day-rate scenario (£56,957) needs to fund what the salary provides for free:

• Holiday equivalent: 28 days at £400/day = £11,200 of income you cannot bill
• Employer pension: if the permanent role contributes 5% of £65,000 = £3,250/year into your pension
• Sick cover: even one week of illness costs £2,000 in unbilled days

Once these are factored in, the day rate at 200 billable days produces broadly similar total compensation to the £65,000 salary — with higher risk and cash-flow variability.

Break-even analysis

To genuinely exceed the salaried role's total package value, the contractor needs to bill enough days to generate a meaningful surplus above the £48,257 take-home plus the benefits foregone. At £400/day, that typically means sustaining 220+ billable days with minimal gaps.

Practical next step

Use the day-rate to salary calculator to model your billable-days assumption, then compare the output directly against a salary in the job offer comparison calculator.