A must read if you are moving from direct salaried employment to hourly contractual consulting assignments. By converting your salary into an hourly rate, you can compare what you currently make with your hourly pay rate equivalent in the market today.

Like everyone, you want a job with great pay and a lot of perks and benefits. Traditionally, positions offered with an annual compensation were popular, but the industry is moving towards roles which pay at hourly rates along with an opportunity for growth.

Note: All the following calculations do not include tax calculations. Tax calculations are more or less the same, so you need not consider them for hourly rate conversions.

Method 1: Simple Calculation for Hourly Rate

To figure out your hourly pay rate from your salary, you need to first figure out how many hours you work a year.

Assumption 1: There are 52 working weeks in a year.
Assumption 2: A full-time employee works 8 hours a day and 40 hours a week.

Therefore, you work 2,080 (40 x 52) hours a year.

To get your hourly pay rate, divide your annual salary by 2,080. If you make $60,000 a year, your hourly pay rate is $60,000/2080, or $28.84.

Method 2: Considering Federal Holidays

Your company holiday list would typically include 12–15 federal holidays in 2017, so that should really be included in the calculation.

Assumption 1: There are 52 working weeks in a year.
Assumption 2: A full-time employee works 8 hours a day and 40 hours a week.
Assumption 3: There are 2 weeks of holidays in a calendar year in USA. Therefore, you work 50 weeks in a year.

For 50 weeks, you work 2,000 (40 x 50) hours a year.

To get your hourly pay rate, divide your annual salary by 2,000. If you make $60,000 a year, your hourly pay rate is $60,000/2000, or $30.00.

Method 3: Considering Vacation/Paid Time Off

Despite 12–15 federal holidays, you or your family may fall sick, you may want to take personal time off, you may travel with friends and family, may be you need maternity/paternity leave, or may be you need dedicated time to study for technical certifications. Your company may provide 2 weeks of paid time off to accommodate life situations.

Assumption 1: There are 52 working weeks in a year.
Assumption 2: A full-time employee works 8 hours a day and 40 hours a week.
Assumption 3: There are 2 weeks of holidays in a calendar year in USA. Therefore, you work 50 weeks in a year.
Assumption 4: In addition to 2 weeks of holidays, you get 2 weeks of Vacation or Paid Time Off (PTO) in a year.

Therefore, for 48 weeks, you work 1920 (40 x 48) hours a year.

To get your hourly pay rate, divide your annual salary by 1920. If you make $60,000 a year, your hourly pay rate is $60,000/1920, or $31.25.

Where Does that Take Me?

Although $60,000 a year might seem like a lot of money, yet knowing your hourly equivalent of $31.25 will definitely make it easier to find another job with a higher hourly rate.

An offer that pays you more than your hourly rate (using Method 3) is actually a better deal than your salaried job.

If a prospective employer offers an hourly rate and you are negotiating an annual salary, you have to do reverse math. Reverse calculation can be easily done to get the monthly and annual salaries at a fixed hourly rate.

Do remember that your annual compensation will be higher than base salary. Companies pay 10-30% of base salary as overheads. Overheads constitute perks, benefits, and legally required deductions and payments. According to Bureau of Labor Statistics (BLS), employer cost for employee compensation averages to 30.2% of base salary.

So, you may get $60,000 but it may cost $78,120 to your employer. Why? Watch this space to know more about that.

Disclaimer: This blog is for educational purposes only. The information provided here is intended to help you understand general issues and does not constitute any tax, investment or legal advice. Consult your financial, tax, or legal adviser regarding your own unique situation and your company’s benefits representative for rules specific to your employment plan.

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