How to Calculate Hourly Rate from Annual Salary: Comparing Job Wages

Calculate Hourly Rate from Annual Salary

Calculating Hourly Wage Rate

Perhaps you’re trying to compare your current pay rate to the compensation you would receive in a different position or even at a different company. Or maybe you’re viewing a salary survey and trying to figure out where you stand, but the data is provided in terms of hourly rates and you’re on a salary. Whatever your reason for wanting to calculate hourly rate from annual salary information, know that you can do it in a few simple steps.

Note that if you’re earning $40,000 a year and have three weeks of combined vacation and sick time, you receive that amount for 49 weeks of work if you use all your vacation and sick time. So the calculation is simplest if you’re comparing jobs with comparable vacation and sick time benefits. You don’t even need to factor in days off, as the company is essentially paying you for both the days you work and the days you take as vacation or sick days.

Performing the Calculation

With 52 weeks in a year and 40 work hours per week, there are 52×40=2080 work hours in a year. So you simply divide your $40,000 by 2080 hours and get 40,000/2080=$19.23. So the hourly rate that is equivalent to your salary of $40,000, all other things being equal, is $19.23 per hour.

Replacing these specifics with a more general equation, you can calculate an hourly rate from an annual salary using this equation:

Salary (in dollars) / Hours worked per year = Hourly rate

or, more specifically:

Salary (in dollars) / ( Hours worked per week x 52 ) = Hourly rate

Perhaps you want to compare your salaried position to a contract position that pays hourly, or you are determining how to set hourly rates as a contractor to be equivalent to a specific salary. In those cases, you may want to consider that you actually receive a salary for working only the days you don’t take off as sick or vacation days.

Salary vs. Hourly

For example, if you have two weeks of vacation time and two weeks of sick time, you receive that $40,000 for 48 weeks of work a year. Thus you are actually paid $40,000/(40 x 49) = $40,000/1920 = $20.83. This is a difference of over $1.50 an hour from the original calculation. If you were to do contract work at a rate of $19.23 per hour, you would either have to work 40 hours a week all 52 weeks of the year to earn $40,000, or work 43.3 hours a week to earn $40,000 and still get four weeks off each year. If you were to work only 48 weeks a year at 40 hours a week, you would earn only $36,923.

So while it is quite simple to calculate hourly rate from annual salary, be sure you understand the assumptions you make when you make the comparison so you’ll actually be answering the right question.