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- How to convert salary to hourly wage
- Steps to Convert a Wage to an Hourly Wage
- Salary formula for hourly wage
- How payroll taxes and withholding taxes are settled
- How to decide which structure is best
- common questions
- references
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Andres Panello
Andrew holds a BA in Finance and a BA in Political Science from the University of Colorado, specializing in finance, real estate, and life insurance.
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Laura Deimling, MBA
Laura began her career in finance a decade ago, providing strategic financial management consulting. She holds an MBA in Finance and a BA in Economics.
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How to convert salary to hourly wage
In general, an employee can be paid in two ways: with an annual salary or with an hourly wage.
While there may be other in-kind benefits that make up an employee's total compensation, such as insurance, vacation days, benefits, and more, these are the two most common ways people receive cash payments as part of their compensation.annual income.
There are also many payment structures that offer elements of both. Hybrid remuneration systems (part-time and part-time salaries) as well asCommission based payment systems, are just two such examples.
If you are comparing different job offers or trying to negotiate with a potential employer, it would be helpful to know how to convert an annual salary to an hourly wage. All else being equal, finding the best compensation for them will be easier.Tempoworks and which payment structure works best for you.
In this guide, we discuss the most important things you need to know about converting wages to hourly wages.
Steps to Convert a Wage to an Hourly Wage
If you are currently an employee or are considering becoming an employee, you might want to know how much that equals per hour.
Business owners and contractors who are trying to determine whether working independently is a financially viable option will also want to know their hourly wage.
Fortunately, converting a salary to an hourly wage is quite easy. It is necessary to identify the following variables:
- your current salary
- The average number ofhours you workper week (including weeks when you don't work, which slightly lowers the average)
- The number of weeks in the period you are measuring (if you are measuring for a year this number would be 52)
Salary formula for hourly wage
You can use this formula to calculate your hourly wage:
Salary per hour =Wage/hours per week × 52
For example,Let's say your annual salary is $60,000 and you work an average of 36 hours a week.
While your typical workweek is 40 hours, you've taken a few weeks of unpaid vacation and sick leave, so the average number of hours actually worked is slightly below the typical workweek.
Using the above formula we can solve:
Salary per hour =60.000 $/36 × 52
Salary per hour =60.000 $/1.872
Hourly wage = $32.05 per hour
So in the example above you would earn $32.05 per hour.
The number 1872 in the calculation above represents the total number of hours you worked in the given year.
If you already have this information, you can use an even simpler formula to make the final calculation.
Salary per hour =total salary/total hours worked
For example,Let's say your annual salary is $80,000 and you already know that you've worked a total of 2,000 hours this year (a pretty typical number).
In this case, you can use the simplified formula, which will lead to the following salary:
Salary per hour =80.000 $/2000 hours
Hourly wage = $40 per hour
In this example, the equivalent wage would be $40 per hour.
Both formulas work regardless of how many hours you worked in a given year or what your salary is.
A typical full-time job, where an employee works 40 hours a week and receives time off and vacation, is 2,080 hours a year.
Of course, there can sometimes be other factors that can complicate things.
For example, if your employer offers company-paid health insurance that would cost you $8,000 a year if you bought it, you might want to include that number in your final calculation. This makes it easy to compare total compensation packages instead of just comparing your salary or hourly wage.
These formulas do not take into account variables such asovertime payand the impact of taxes and other possible withholding taxes, so you may also need to consider this to get an overview of your compensation.
How payroll taxes and withholding taxes are settled
The hourly wage calculation is based on your pre-tax earnings and the result is your pre-tax hourly earnings. This is also known as gross salary.
To determine your after-tax net pay, you must consider income taxes, Social Security, Medicare, state and local taxes. You should also account for other withholding taxes, such as health insurance or pension.
Your income should be taxed at the same rate for wages and hourly wages. So if you know your salary tax rate and withholding, you can use the same tax rates and withholdings to calculate your after-tax hourly wage.
For example, if your annual taxes and withholdings are $10,000, you could divide the $10,000 by the total number of hours worked per year to find your hourly tax rate.
Then subtract the taxes and hourly withholding tax to get your after-tax hourly rate.
The best way to calculate your taxes and withholdings is to consult an accountant or use the IRS withholding calculation tool.[1]
How to decide which structure is best
There are many things to consider when comparing different jobs or different compensation packages.
Taking some time to evaluate the physical components of your compensation (health, retirement contributions, vacation days, reimbursements, schedule, etc.) will help you compare options with different structures more easily.
There are other factors to consider too, for example employees may have to work 40+ hours without adequate pay some weeks. On the other hand, hourly workers may not have as many benefits as their employees.
Both systems have their advantages and disadvantages, but in any case, learning how to convert wages to hourly wages (and vice versa) can be beneficial.
common questions
What is a good hourly wage?
The median hourly wage in the United States as of January 2023 was $33.03, but this varies greatly by geographic location, industry, education level, and experience.[2]The state minimum wage is $7.25 an hour, but most state minimum wage laws are much higher than the federal rate.[3]
How many hours is full time?
There is no definition of full-time or part-time employment under the Fair Labor Standards Act (FLSA).[4]This is defined by each employer; However, most employers consider an employee who works 30 hours or more a week to be a full-time employee.
Full-time employees often receive additional benefits that part-time employees do not. Therefore, it is important to clarify with a prospective employer whether a position qualifies as full-time or part-time.
Is hourly wages better than commission wages?
Whether an hourly wage or a commission pay is more advantageous for an employee depends on personal preference. Commission-only jobs sometimes offer fewer benefits than full-time hourly jobs. There is also no federal minimum wage for commission-only work, meaning an employee can work hours without compensation if they aren't making sales.
In many cases, commissioned employees also do not receiveannual salary increases, which can be an important consideration.
In general, it is important to understand your hourly wage, whether you are an employee or an hourly worker. It will help you compare different jobs, negotiate with employers and come up with the right budget.