When you are paid by the year or by the task, you might not know your hourly salary. However, your hourly salary helps you determine how much your time is worth and also helps you compare your current job to other offers that pay by the hour. For example, if you are working a salaried position and are considering switching to an independent job and billing by the hour, knowing your effective hourly salary helps you set your rate.
From Annual Salary
Multiply the base pay on your most recent pay stub by the number of pay periods in one year to determine your annual salary. The base pay is the amount before taxes and deductions. Another method is to use the annual salary you were given in your job contract.
Add any fringe benefits that are not included in your base pay to get your effective annual salary. For example, if your employer gives you a life insurance policy or contributes to a retirement plan, add the annual value to your annual salary.
Calculate the number of hours you work per year by multiplying your average hours per week by the number of weeks you work each year. Subtract two weeks for paid holidays and also subtract the number of weeks you get for paid vacation each year. For example, if you work 45 hours per week 48 weeks per year, you work 2,160 hours per year.
Divide your effective annual salary by the number of hours you work per year. For example, if your effective salary is $65,000, divide this by 2,160 to calculate an effective hourly salary of $30.09.
Log all of the hours, both billable and not, that you spend on a particular task that you will be paid for in a lump sum. For example, you might be a consultant or a construction worker and are paid for completed tasks, not for hours worked.
Calculate how much you earned for the task. This might be from a bill you give the client or by adding up the billable hours and multiplying this by the hourly rate you bill.
Divide the total amount you earned by the number of hours you put into the job to find out your effective hourly rate for that job.
- An American Editor; Thinking About Money: What Freelancers Need to Understand; October 2010
- Slaw Tips; Figure Your EHR (Effective Hourly Rate); June 2011
- Intuit: Hourly Wage Calculation for Salary Employees
- Internal Revenue Service. "Publication 525 (2019), Taxable and Nontaxable Income." Accessed Apr. 20, 2020.
- Internal Revenue Service. "Publication 516 (2019)," Page 3. Accessed Apr. 20, 2020.
- Department of Labor. "Fact Sheet #17G: Salary Basis Requirement and the Part 541 Exemptions Under the Fair Labor Standards Act (FLSA)." Accessed Apr. 20, 2020.
- The New York Times. "Overtime Rule Is but the Latest Obama Initiative to End in Texas Court." Accessed Apr. 20, 2020.
- Department of Labor. "Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees," Page 7. Accessed Apr. 20, 2020.
- Department of Labor. "Final Rule: Overtime Update." Accessed Apr. 20, 2020.
- Internal Revenue Service. "401(k) Plans - Deferrals and Matching When Compensation Exceeds the Annual Limit." Accessed Apr. 20, 2020.