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How to Convert an Annual Salary to an Hourly Wage



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Converting your salary into an hourly wage sounds like a simple enough thing to do, however there are several things that must be taken into account for an accurate measurement. Things such as overtime, vacation pay and leap years will also affect wages but not salary. So getting an accurate calculation needs to factor in the value of other things that your job brings other than just what you are paid.

The other important factor that most people tend to overlook is the fact that tax brackets can be affected by you earning a little more or less each year. So for example with wages you might make a little more money, but then fall into a higher tax bracket and actually end up with less money in the long run.

Many people tend to get confused as to whether they would prefer to take a yearly salary or an hourly wage, and the financial ramifications of either of them. Certainly each have their good and bad points and should be researched thoroughly before a decision is made in favor of either. Certainly making the wrong decision in these matters can mean the difference between making the money you want and seemingly working your fingers to the bone for a pittance.

Aside from the actual monetary differences of a wage against a salary there are also other differences that should be considered. For example with a salary you are usually entitled to more rights and have guaranteed employment period, usually of at least a year. Some jobs that pay a wage have no such guarantees in place, as well as often having less provision for things like sick pay and vacation time.

The basic method for conversion is as simple as:

Salary divided by 12 (for months), divided by 4 (weeks in a month) and then divided by 40 (hours).

So taking a $40,000 per annum salary as an example:

40,000 divided by 12 = (3333.33) divided by 4 = (833.33) divided by 40 = 20.8

This makes the hourly rate roughly $20.80 per hour.

This then gives you a basic hourly rate based upon a 40-hour working week. This isn't entirely accurate however because not every month has exactly four weeks and not every job is based on forty hours of work per week either. So to work this out to an exact figure requires additional information and would need each month to be worked out separately.

Many jobs also require you to world overtime which isn't paid for if you are on a salary, meaning this could be quite different if you were on a wage.

Another consideration when converting salary into wages is that over the long term, leap-years must be taken into account. These will affect the fall of the weeks and will also give you extra money with wages. Because of course you get paid for every day you work, rather than a flat rate for the month. This extra time isn't factored into salaries, where the extra work will be essentially done for free.

Probably the largest bonus of having a salary is that in some jobs, you don't have to work a specific amount of hours to still get paid as you do with wages. So for example if you only end up working 25 hours one week because of a quiet period, or if you get a few days ahead with your work, then this isn't a problem. The same motivation to get things finished earlier with wages isn't there because of the fact that you actually get paid for taking longer with things. As such then sometimes you can potentially finish early, take things easier and not have to hang around with nothing to do to still paid with salaries.

One large bonus that wages have over the salary however is overtime, which can make a big difference to how much you end up making at the end of the year. First of all overtime by law is optional with a wage based system, and because of this a higher rate is paid to encourage people to want to do it. With a salary however, overtime is usually expected regardless of whether you want to or not, and isn't paid either.

This can be as much as double usual time or even triple on holidays etc. With a salary you are often required to work over forty hours per week, and you don't get any extra money for your trouble. So if you have a job that offers a lot of overtime regularly then you can end up making a lot more then a wage than a salary.

Many people also find that with all the overtime that they put in while working for a salary, they are actually working for under minimum wage when all their hours are added up. Because overtime is often a condition of many salaried jobs, bosses will tend to give you a lot of it. If you were on a wage they would not, because of all the extra it would cost them in overtime pay. To use the example shown earlier:

$40,000 per year works out at around $20.8 per hour. If you instead got a job that paid a wage of $20 per hour then you would at first appear to make less ($38,400).

However if you then worked an additional 20 hours per month, at a wage of 1.5x your original rate ($30 per hour). Then you would end up making an extra $7200 per year.

So in the end you could be making $45,600 instead of only $40,000 for doing the same job as before.

This is only a fairly low amount of overtime as well, some jobs allow overtime a lot more, so for the same basic hourly rate you could end up making a significant amount more with a wage than a salary. The only other thing that should be remembered when deciding between the two in situations such as this is that having a higher wage might put you in a higher tax bracket. This can mean that your taxes might go up by more then your financial increase has, meaning you might actually be losing money by making more. This of course depends on the taxation in your area, and whether you have any means to make some of your income or possessions tax deductible.

More about this author: Jonte Rhodes

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