Salary vs. Hourly: What's Your Real Pay Rate?

The Basic Conversion

Converting salary to an hourly rate is straightforward:

Hourly = Annual Salary ÷ (Hours per Week × Weeks per Year)

A $75,000 salary at 40 hours/week for 52 weeks comes to about $36.06/hour. But the assumptions behind those numbers change everything.

Watch the Hours

If you're salaried but regularly work 50 hours a week, your effective hourly rate drops. That same $75,000 spread over 50 hours/week for 52 weeks is closer to $28.85/hour — a big difference from the headline $36.

The Overtime Advantage (Hourly Workers)

Hourly workers get paid 1.5x for hours beyond 40 in a week under federal law. If an hourly worker earning $30/hour works 10 overtime hours, they make $450 extra that week — time that a salaried exempt employee effectively works for free. If you regularly work overtime as an hourly employee, your effective rate is actually higher than your base.

Don't Forget Time Off

An hourly worker who gets paid only for 40 hours/week but takes two weeks of unpaid vacation effectively works 50 weeks, not 52. A salaried worker typically gets paid for holidays and vacation. When you compare offers, count the paid weeks, not just the rate.

Paid Time Off: How to Value It

• 2 weeks PTO + 10 holidays = ~6% of salary in paid non-working days
• 4 weeks PTO + 10 holidays = ~11.5%
• As an hourly worker without PTO, you'd need to earn 6-12% more per hour to match a salaried position with PTO

Benefits: The Hidden Paycheck

Employer contributions to health insurance, 401(k) matching, life insurance, and other benefits can add 20-30% to your total compensation above base salary. A $75,000 salary with strong benefits might be worth $95,000+ in total compensation, while a $40/hour contract position with no benefits is just $83,200 — even though the hourly rate looks higher.

Common Benefits and Their Approximate Value

• Health insurance (employer portion): $5,000-$15,000/year
• 401(k) match at 4%: $3,000/year on $75K salary
• Life insurance and disability: $500-$1,500/year
• Paid parental leave, tuition reimbursement, etc.

Gross vs. Take-Home

All of these figures are gross, before taxes and deductions. Self-employed contractors pay both halves of payroll tax (15.3% vs the 7.65% employees pay) and must fund their own benefits. A contractor needs to earn roughly 130-150% of an equivalent salary just to break even after taxes and benefits.

The Real Rule of Thumb

When comparing a salaried W-2 job to a 1099 contract or hourly role, multiply the W-2 salary by 1.3 to 1.5 to find the equivalent contractor rate. A $100,000 salary is roughly comparable to $65-77/hour as a contractor, not $48/hour based on simple division.