Hourly to salary is a calculation used to determine a worker’s annual salary based on their hourly pay.
How do you calculate hourly to salary?
Part-time and full-time hourly workers can calculate their annual salary based on their hourly wage as long as they know the number of hours they’ll work per week in one calendar year.
The basic hourly to salary formula is:
Hourly rate x hours worked per week x number of weeks worked in one calendar year.
For example: An employee makes $25 per hour, works the typical 40-hour workweek, and works 50 weeks of the year (assuming the worker takes two weeks of unpaid vacation per year).
$25 x 40 x 50 = $50,000 annual salary
You can also use this formula to determine an hourly worker’s monthly salary by dividing the total salary by 12 (as there are 12 months in one year).
$25 x 40 x 50 = $50,000 / 12 = $4,166.67 monthly salary
You can continue these calculations to determine your bi-weekly or weekly pay, depending on your pay periods.
This calculation does not take into consideration overtime pay, income tax deductions, or employee costs such as Social Security.
Is it better to be paid hourly or salary?
There are benefits and drawbacks to both compensation structures.
In the United States, hourly workers are usually considered non-exempt employees, which means they are entiteld to overtime pay. Under the Fair Labor Standards Act (FLSA), all employees in the United States must be paid at least minimum wage for hours worked. They also must be paid overtime pay of at least time and one-half of their regular hourly rate for hours worked over 40 hours in one workweek, but many salaried positions are exempt from this.
Hourly positions are often more flexible than salaried positions, as they can be full-time or part-time, giving the worker the time to take on a second job, go to school, or care for family. However, hourly positions are less likely to come with employee benefits like health insurance and retirement plans, whereas most salaried positions come with those perks and more.
Salaried positions tend to provide more financial security since workers know how much money they’ll earn each paycheck—and for the entire year. Salaried employees usually get paid time off for sick days, personal days, and holidays, as well.
When to use an hourly to salary conversion
Hourly workers, job seekers, and employers can all use the hourly to salary formula to achieve different goals:
To project annual income
Hourly workers often use the hourly-to-salary formula to calculate their projected weekly, monthly, or annual income for financial planning purposes. Salaried employees receive an annual salary offer when they accept a new job, so they know exactly how much income they’ll earn in one calendar year. On the other hand, hourly workers receive a compensation offer in the form of an hourly rate, such as $25 per hour, so their annual income isn’t as clear.
For applications and large purchases
An hourly worker looking to rent an apartment will likely need to know their annual income. In some countries, landlords require proof of income and for tenants to make a certain amount of money per year to be approved for a lease. Your income is also used to determine what you can afford when making a large purchase, such as a home.
To ensure a fair annual salary
The hourly-to-salary calculation is helpful for hourly employees or independent contractors considering salaried job offers. For example, a freelance Graphic Designer may know what their services are worth per hour, since that’s how they charge clients. But if they’re looking to transition to a full-time role, they’ll need to know the equivalent salary (while taking into consideration that hourly rates for freelancers are often higher than hourly rates for employees).
To determine a compensation offer
Employers who are converting hourly workers or contractors to full-time employees can use this formula to determine a fair compensation offer for their new hires. They can also use Deel’s Salary Insights Tool to access real-time compensation rates across the globe.