Why one salary has three hourly rates
A salary is a price for a year of your availability; an hourly rate is a price for an hour of your work. Converting between them requires a decision about what counts as an hour, and there are three defensible answers, which is why the same $65,000 can honestly be quoted as $31.25, $33.85 or $40.63 an hour.
The standard rate divides the salary by scheduled hours for the whole year — 40 × 52 = 2,080 hours. This is the figure job postings, salary surveys and HR systems mean, and it is the right number for comparing two job offers.
The effective rate divides by the hours you actually work, after paid holidays and vacation are removed. Four weeks of paid leave means you are paid for 2,080 hours and work 1,920, so every hour worked is worth 8.3% more than the standard rate. This is the right number for comparing a salaried job against contract work, because a contractor is paid only for hours delivered.
The loaded rate adds what your employer pays on top of salary — health insurance, retirement match, and, if you include it, the 7.65% employer share of Social Security and Medicare tax. This is what you cost the business, and it is the right number for a freelancer working out what to charge, which the freelance hourly rate calculator takes further.
Where 2,080 comes from, and when it is wrong
2,080 is 40 hours multiplied by 52 weeks. The 40-hour week is the threshold in the Fair Labor Standards Act above which covered non-exempt employees must be paid overtime at one and a half times their regular rate, and it became the standard full-time week for salary purposes as well. A year is 52.1786 weeks on average rather than 52, but payroll and salary conventions round to 52, and this calculator follows the convention.
The number stops being right the moment your week is not 40 hours. A salaried professional working 50 hours has a standard rate of salary ÷ 2,600, which is 23% lower than the same salary over 2,080. That is not a quirk of the arithmetic; it is the actual price of the extra ten hours, and for an exempt employee it is unpaid. Whether your role is exempt from FLSA overtime turns on your duties and on a salary threshold set by Department of Labor regulation, not on the fact that you are paid a salary — "salaried" and "exempt" are different things, and a non-exempt salaried employee is still owed overtime at time and a half. The overtime pay calculator works out what that is worth.
The other place the convention breaks is a year that is not 52 paid weeks. School-year contracts, seasonal shutdowns and unpaid sabbaticals all mean you receive a salary for fewer weeks of work. Enter those as unpaid weeks: they raise the effective hourly rate, because the same money is earned across fewer hours, while leaving the biweekly and monthly figures alone.
Worked example: $65,000 with four weeks of paid leave
You are offered $65,000 for a 40-hour week, with three weeks of vacation and ten public holidays — four weeks of paid leave in total. The employer also pays $13,000 a year for your health cover and retirement match.
- Scheduled hours. 40 × 52 = 2,080 hours.
- Standard hourly rate. 65,000 ÷ 2,080 = $31.25.
- Weeks actually worked. 52 − 4 = 48.
- Hours actually worked. 40 × 48 = 1,920 hours.
- Effective hourly rate. 65,000 ÷ 1,920 = $33.85, which is 33.854167 ÷ 31.25 − 1 = 8.33% above the standard rate. That 8.33% is exactly 4 ÷ 48, the paid weeks off as a fraction of the weeks worked.
- Loaded rate. (65,000 + 13,000) ÷ 1,920 = $40.63. Your employer pays 40.625 ÷ 33.854167 − 1 = 20% more than your salary implies, which is the benefits load.
- Pay periods. Monthly 65,000 ÷ 12 = $5,416.67. Semi-monthly ÷ 24 = $2,708.33. Biweekly ÷ 26 = $2,500.00. Weekly ÷ 52 = $1,250.00.
Note that biweekly and semi-monthly are not the same thing. Twenty-six biweekly cheques of $2,500 and twenty-four semi-monthly cheques of $2,708.33 both total $65,000, but the biweekly schedule produces two months a year with three cheques in them, which is worth planning around rather than treating as a bonus.
Comparing a salary against an hourly offer
Use the effective rate, not the standard one, and add the benefits load to whichever side has it. A $35-an-hour contract with no paid leave and no benefits is worth less than a $65,000 salary with four weeks off and $13,000 of benefits, even though $35 looks better than $31.25: the salaried role is worth $40.63 an hour of employer cost against the contractor's $35, and the contractor also pays the full 15.3% self-employment tax rather than half of it.
Two adjustments in the contractor's favour are easy to forget. Unbilled hours — sales, admin, invoicing — are unpaid, so a contractor billing 1,500 hours a year at $35 earns $52,500, not $67,200. And a contractor carries the gap between contracts. That is why the conventional rule of thumb is that an independent rate needs to be meaningfully above the loaded salary rate to be equivalent, and why the self-employment tax calculator belongs in the comparison.
Going the other way — hourly to salary — the same logic applies in reverse: multiply by hours actually worked, not by 2,080, unless the hourly job pays for leave. The hourly to salary calculator handles that direction, and the take-home pay calculator converts either into what actually lands in your account.
Common salaries at 40 hours a week
| Annual salary | Hourly (2,080 h) | Effective (1,920 h) | Weekly | Biweekly | Monthly |
|---|---|---|---|---|---|
| $40,000 | $19.23 | $20.83 | $769.23 | $1,538.46 | $3,333.33 |
| $50,000 | $24.04 | $26.04 | $961.54 | $1,923.08 | $4,166.67 |
| $60,000 | $28.85 | $31.25 | $1,153.85 | $2,307.69 | $5,000.00 |
| $65,000 | $31.25 | $33.85 | $1,250.00 | $2,500.00 | $5,416.67 |
| $75,000 | $36.06 | $39.06 | $1,442.31 | $2,884.62 | $6,250.00 |
| $100,000 | $48.08 | $52.08 | $1,923.08 | $3,846.15 | $8,333.33 |
| $150,000 | $72.12 | $78.13 | $2,884.62 | $5,769.23 | $12,500.00 |
Every figure is gross. Tax, insurance premiums and retirement contributions all come out of the amounts shown.
Mistakes that make the conversion misleading
- Dividing by 2,080 when you work 50 hours. The hours you actually work set the rate. A 50-hour week on $65,000 is $25.00 an hour, not $31.25, and that gap is the honest measure of the unpaid overtime.
- Ignoring paid leave when comparing against contract work. Four weeks of paid leave is worth 8.33% on top of the standard rate, before any benefit is counted.
- Treating biweekly as twice monthly. Biweekly is 26 payments and semi-monthly is 24. The biweekly cheque is smaller, and two months a year carry three of them.
- Comparing gross to net. A quoted hourly rate for a contractor is usually gross of the full 15.3% self-employment tax, while an employee pays 7.65% and the employer pays the rest.
- Forgetting the employer benefits load. Health cover and a retirement match routinely add 20% or more to the cost of an employee, and none of it appears in the salary.
- Assuming salaried means no overtime is owed. Exemption from the Fair Labor Standards Act depends on duties and a salary threshold. A non-exempt salaried employee is still entitled to overtime pay.
What to do with the number once you have it
Price your own time with the effective rate, not the standard one. When you are deciding whether to drive two hours to save $80, or whether to take on a side project, the relevant comparison is what an hour of your labour actually earns after leave is accounted for — $33.85 in the worked example, not $31.25.
Negotiate with the standard rate, because that is the currency of job postings and salary bands. If a posting quotes $34 an hour and you are on $65,000, you are being offered 34 × 2,080 = $70,720, an 8.8% raise, before you look at what happens to leave and benefits.
Budget from the pay-period figures, and budget from the smaller one. On a biweekly schedule, plan the month around two cheques and treat the third cheque in the two long months as a windfall for savings or debt, which is exactly what the 50/30/20 budget calculator assumes when it works from monthly income.
Key terms
- Exempt employee
- An employee excluded from the Fair Labor Standards Act's overtime requirement because of their duties and salary level. Exempt employees are not owed extra pay for hours beyond 40 in a week.
- Regular rate
- The FLSA term for the hourly rate on which overtime is based. It includes non-discretionary bonuses and shift differentials, so it can be higher than the base hourly rate.
- Benefits load
- Employer-paid costs on top of salary — insurance premiums, retirement contributions, payroll taxes — expressed as a percentage of salary.
- Semi-monthly
- Paid twice a month, 24 times a year, usually on fixed dates. Distinct from biweekly, which is every two weeks and 26 times a year.