How to Calculate Your Hourly Wage When You’re on a Salary
If you’ve been offered a job that comes with an annual salary, or are already employed in one, you may want to know what your salary equates to in terms of an hourly rate of pay.
This article will explain how to convert salary to hourly and additional factors you’ll need to take into account to get a complete picture of your earnings.
We’ll also cover the opposite approach for those looking to convert hourly to salary.
Before we delve into converting a salary to hourly pay, we’ll first establish the main differences between the two.
When you take on a role as a salaried employee, you agree to be compensated a fixed figure on an annual basis in return for fulfilling the duties associated with your position.
Depending on the employer’s payment schedule, a salary is paid in installments throughout the year, normally on a monthly or bi-weekly basis.
Full-time salaried employees tend to work, on average, a 40-hour week over five days. Any work undertaken outside these hours is generally not compensated for.
An hourly wage is just as it sounds. It is a set amount awarded to an employee for each hour worked.
If you were on an hourly wage, you’d be required to clock in and out and would be paid accordingly for each hour and hour-fraction logged.
If your hourly rate was $11.00 and you worked for 36 and a half hours in one week, you would be paid $401.50 for that period (36.5 x $11.00 = $401.50).
One of the benefits of being an hourly employee is that you must be paid time-and-a-half for any overtime under federal law.
With this in mind, as a salaried employee looking to convert salary to hourly, you’re essentially working out what your time is worth on an hour-by-hour basis.
There are several reasons why it could be useful to convert a salary to hourly pay.
Most salaried employees working in administrative, executive or professional roles are classed as exempt under the Fair Labor Standards Act (FLSA).
What this means is that there is no legal requirement for an employer to pay for any hours worked outside of a standard 40-hour-per-week contract.
If you’re regularly working more than 40 hours a week, it could be that your pay comes in under the minimum hourly wage for the state in which you work; in which case, you’re in a good position to negotiate your salary.
You may also want to make the conversion if you’re moving from an hourly to a salaried position.
In this case, understanding how the salary offered compares against your current hourly wage will help you determine if the move is financially viable.
It could simply be that you want to compare your pay against average US earnings, and an hourly rate would give you better insight into what you’re rewarded on a daily and weekly basis.
As a salaried employee, you may well receive additional benefits and perks that carry financial value.
To get an accurate annual-salary-to-hourly-rate conversion, consider if any of the following apply to your situation:
Employee benefits, like health insurance and 401(k) contributions, form part of your compensation package, and whilst not included in your stated salary, they do bring financial benefits that you would not otherwise have.
If your employer pays an annual sum of $4,000 towards your retirement plan, that’s $4,000 you’re gaining in addition to your salary.
Similarly, if your employer pays a percentage of your healthcare premiums, that’s money you don’t have to find yourself.
If you’re in a profession where commission is the norm, you’ll need to add this to your salary as it accounts for a percentage of your total annual earnings.
The same goes for any bonus scheme your employer may offer.
In some cases, commission and bonuses are offered as a way of topping up an employee’s salary to meet minimum wage regulations.
Tips are normally associated with hourly positions (for example, roles in hospitality), but if you are in regular receipt of tips, you’ll need to factor these in too.
This can be quite difficult to do as income from tips can vary from week to week. For an accurate picture, tally up your tips over a few weeks or months and use this to calculate an average over a year.
How you account for overtime will depend on whether you’re an exempt or non-exempt employee.
As previously discussed, most salaried posts are exempt.
If this applies to you, you’ll need to add up all the hours worked over the 40-per-week-standard throughout the year and add these to your contracted hours to convert your salary to hourly pay.
If you’re a non-exempt employee, you’ll be paid time-and-a-half for any overtime you work.
In this case, you’ll still need to add your overtime to your contracted hours, but you’ll also need to add your overtime pay to your base salary before converting.
One of the benefits of being a full-time employee on an annual salary is paid vacation time.
Whilst not a legal requirement, most employers do offer this, typically two weeks per year.
If you receive paid vacation time, you’ll need to account for this when you convert your salary to hourly pay. For those two weeks, you’ll still receive an income but you won’t actually be working.
You’ll also need to consider whether you want to do a salary-to-hourly conversion based on your gross or net pay.
Your gross pay is your stated salary amount before any deductions are applied.
Your net pay is your take-home pay. Essentially, it’s what you’re left with after you’ve paid taxes, any student loan repayments and any contributions towards your employee benefits package.
Generally speaking, it’s best to make a conversion based on your gross pay as hourly rates are also subject to taxes, so this gives you the best like-for-like comparison.
However, if you’re making the conversion for financial reasons, like tracking your actual income vs. your outgoings, you’d be best to first calculate your take-home salary and use that for conversion purposes.
To convert your salary to an hourly wage, you’ll first need to establish what it is. If you’re unsure of this information, you should find everything you need to know on your pay stubs.
These will show your gross pay for the given period, followed by any deductions and finally, your net pay.
To calculate your salary, simply multiply your gross pay by the number of times you’re paid throughout the year.
For example, if your pay stub states gross pay of $4,000 and you’re paid monthly, your salary would be $4,000 x 12 = $48,000.
If you’re paid on a bi-weekly basis, you’d multiply your gross pay for that period by 26.
Now you need to work out how many hours your work throughout the year.
For many full-time employees, this is a simple equation. Most will work 40 hours a week so it’s just a case of multiplying this by how many weeks you actually work.
Remember, paid vacation time should not be included.
As an example, anyone working 40 hours a week and in receipt of two weeks of paid vacation time would calculate their hours thus:
40 x 50 = 2,000
Don’t forget to account for any overtime you work.
You can make a quick estimate of your hourly rate by simply dividing your gross pay by hours worked.
Using the above salary and working schedule:
$48,000 ÷ 2,000 = $24 per hour
Of course, this only gives a rough figure and is not actually a realistic salary-to-hourly conversion. For that, we’ll need to factor in a few more details.
Below are two examples of how to convert a salary to an hourly wage based on different working scenarios.
Emma is an exempt salaried employee working 40 hours per week. She receives one week paid vacation time and her employer provides healthcare insurance and 401(k) contributions as part of her compensation package.
Over the course of 12 months, she works 25 hours of overtime.
Emma’s gross annual salary is $42,500.
Hours worked over 12 months = 2,065 (51 weeks at 40 hours plus 25 hours overtime).
Emma calculates that her employer has covered $3,360.00 of her healthcare premiums and contributed $1,912.50 towards her 401(k) plan.
Adding this to her gross salary, gives a total of $47,772.50
$47,772.50 ÷ 2,065 = $23.13
Emma now has a reasonable idea that her hourly wage is $23.13 before taxes and other deductions are applied.
Jack is an exempt salaried employee working 40 hours a week. He receives two weeks of paid vacation time per year and a quarterly bonus. His employer provides healthcare insurance for Jack and his two dependents.
Jack’s gross annual salary is $28,000 and his bonus brings him an extra $2,500 every quarter, taking his total gross pay to $38,000.
He calculates that his employer has covered healthcare premiums to the value of $8,380, money he would have otherwise had to have found himself.
Adding this to his gross income gives Jack a figure of $46,380.
Jack has worked no overtime, so now divides his annual gross figure by 2,000 hours.
$46,380 ÷ 2,000 = $23.19 per hour pre tax and deductions.
If you’re working on an hourly-to-salary conversion, the process is very similar.
First, work out how many hours per week you work, and for how many weeks per year.
For hourly employees, this means work on the clock so don’t include any time not accounted for, like lunch breaks.
For example, if you’re at work for 40 hours a week but clock out for a 30-minute lunch each day, you’d subtract 2.5 hours from your working week, giving a total of 37.5 hours.
Next, multiply your weekly hours by the number of weeks per year you’re at work for.
So, if you take one week unpaid, you’d multiply 37.5 x 51 to give a total of 1,912.5 hours.
Now simply multiply this by your hourly rate, let’s say it’s $17.00:
$17.00 x 1,912.5 = $32,512.50
Your annual pre-tax salary is $32,512.50
The following table gives estimated salary-to-hourly conversions for a 40-hour week based on 50 weeks per year.
It does not account for any additional benefits and all figures quoted are pre payroll taxes.
Converting a salary to an hourly rate of pay is a useful exercise for anyone looking to better understand their income.
It can give you a benchmark for comparative analysis, leverage for negotiating better terms with your employer, and better insight into the value of the employee benefits you receive.
The key thing to remember is that, whether you’re offered an hourly rate or an annual salary, the figure stated in both cases is your gross pay, and your take-home pay will be subject to deductions based on your circumstances.