Salary Converter

The 2,080 hour year

The standard conversion multiplies an hourly rate by 2,080, which is 40 hours across 52 weeks. It is a convention, not a fact: a year contains 52 weeks and one or two days, so some years hold 261 or 262 weekdays rather than 260. Payroll systems handle this differently, which is why a salaried employee occasionally sees 27 fortnightly pay periods in a year instead of 26.

Monthly is not four weeks

Dividing an annual salary by twelve gives the monthly figure. Multiplying a weekly figure by four does not — there are 4.33 weeks in an average month, so the four-week shortcut understates monthly pay by about 8 percent. This is the most common error in the conversion, and it appears constantly in budgeting spreadsheets.

Contractor rates are not employee rates

A contract rate that matches an employee's hourly equivalent is a substantial pay cut. The contractor covers both halves of payroll tax, receives no paid leave, no employer pension contribution, no health cover and no sick pay, and carries the gap between engagements. The conventional rule of thumb is that a contract rate needs to be 1.5 to 2 times the salaried hourly equivalent to be comparable, and that assumes reasonably continuous work.

Unpaid leave changes the divisor

An hourly worker with no paid holiday who takes four weeks off works 48 weeks, or 1,920 hours, not 2,080. Converting their rate at 2,080 overstates annual earnings by about 8 percent. Conversely a salaried employee's real hourly rate is their salary divided by hours actually worked, which for anyone regularly working 50 hours is 25 percent below the nominal figure.

Gross is not take-home

Every figure here is gross. Income tax, social contributions, pension deductions and health premiums come off before anything reaches an account, and the effective rate depends on jurisdiction, filing status and total income. Compare offers gross-to-gross, then model net separately, because a higher gross in a higher-tax jurisdiction can be worse.

Total compensation is the real comparison

Employer pension matching, health cover, equity, bonus and paid leave routinely add 20 to 40 percent to the value of a package. An offer with a lower salary and a 10 percent pension match can beat a higher one with none, and the salary figure alone will never show it.

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