How do you calculate an hourly rate into an annual salary?

Answer 1

How to calculate and hourly rate into an annual salary?

The answer to this question will depend on what is meant by annual salary.

The annual salary earned by an hourly employee is calculated by:

• Annual salary = (hourly rate) x (hours worked)

But hourly employees often receive time and a half for each hour after the fortieth hour every week. So the calculation should be:

• Annual salary = ((hourly rate) x (hours worked)) + ((hourly rate x 1.5) x (overtime hours worked))

However, to convert an hourly rate to an equivalent annual salary for comparison is much more difficult as we must make many assumptions. So, assuming no overtime and some unpaid leave, since there are 52 weeks in the year and assuming a 40 hour work week there are 2080 workable hours a year. But since most companies in the US observe about 5 corporate holidays we lose 40 hours thus there are:

• (Annual hours) - (corporate holidays) = workable hours

e.g. 2080 - 40 = 2040

• (Workable hours) - (leave hours) = hours worked

e.g. 2040 - 80 = 1960

So the hourly employee can expect an annual salary of

• Hours worked x hourly rate = annual salary

e.g. (1960) x ($10) = $19,600.00

But for a true comparison we need to account for the fact that permanent employees receive benefits that most hourly employees do not. So assuming that a permanent employee receives a benefits package valued at 18% of gross annual pay (this may vary widely).

• (Annual salary) - 18% = Adjusted annual salary

e.g. ((1960 x $10) * 0.82) = $16,070.00

However, an independent hourly contractor may receive some tax benefits that are not available to permanent employees. Thus an accurate calculation depends on knowing the values for many variables.
Take the hourly rate you are getting, multiply this by the number of hours you work each week, then multiply this by the number of weeks you work each year.

If yo get paid leave treat this a working time in the calculation above.