How do I convert a salary to an hourly rate?

Which number of hours to divide by

The conversion looks like one division and there are three defensible divisors, which is why two calculators can disagree by a few percent and both be correct.

The common figure is 2,080, being forty hours across fifty-two weeks. Its virtue is familiarity; almost every published salary-to-hourly comparison uses it. Its flaw is that a year is not fifty-two weeks. It is 52 weeks and one day, or two in a leap year, so 2,080 is short by eight or sixteen hours against a genuine full-time year.

The United States federal government uses 2,087 for exactly this reason. It is the average across the twenty-eight-year cycle over which the calendar repeats, and it is the more accurate figure for converting an annual rate into an hourly one where the arithmetic has to hold across years.

The third approach counts actual working days. A typical year contains around 261 weekdays, which at eight hours each is 2,088, and subtracting public holidays brings it down — to roughly 2,000 in the United States with ten federal holidays, and lower in countries with more. This is the right divisor when the question is what an hour of delivered work is worth rather than what a payroll rate is.

Which to use depends on the question. Comparing two job offers, use 2,080 for both and the choice cancels out. Pricing your own time, count the days you will actually work, because the hours you are not paid for are the whole difference between the two figures.

Why a contractor rate is not the salary equivalent

The most expensive mistake in this area is taking a salary, dividing by 2,080, and quoting that as a freelance rate. It is a substantial pay cut presented as a lateral move.

Start with what disappears. Paid leave is the largest and least visible item: a job with fifteen days of holiday and ten public holidays pays for 200 hours you do not work, which is close to ten percent of the year. A contractor taking the same time off is unpaid for all of it, so the same annual income has to come from roughly 1,880 billable hours rather than 2,080.

Then employer payroll taxes. In the United States an employer pays half of Social Security and Medicare, 7.65 percent of wages, and a self-employed person pays both halves as self-employment tax at 15.3 percent. That is a direct increase in tax on the same income. Comparable arrangements exist in most countries under different names.

Then benefits. Employer contributions to health insurance, retirement matching, disability and life cover are real compensation that never appears on a payslip as a number. In the United States, benefits and employer taxes together average around thirty percent of total compensation across the economy, and health insurance bought individually costs far more than the employer-group equivalent.

Finally, unbillable time. Nobody bills forty hours a week as an independent worker. Finding clients, quoting, invoicing, chasing payment, accounting and the administration of running a business consume a large share, and a realistic billable ratio for a solo operator is somewhere between sixty and seventy-five percent of working hours.

Multiplying these through, the common guidance that a contract rate should be roughly 1.25 to 1.5 times the salary-equivalent hourly rate is a floor rather than a premium. At the low end it replaces lost benefits and taxes. It does not yet account for the irregularity of the income, the absence of severance, or the fact that a contractor carries the risk of a quiet quarter.

The timesheet decimal that costs money

Time worked is recorded in hours and minutes and paid in decimal hours, and the conversion between them is where a specific and recurring error lives.

Seven hours and forty-five minutes is 7.75 decimal hours, not 7.45. Minutes are sixtieths and decimals are hundredths, so the conversion is to divide the minutes by sixty. Entered as 7.45 the shift loses eighteen minutes, and repeated across a fortnight it becomes a meaningful sum. The error is easy to make because both figures look like a time and neither looks wrong.

The useful conversions to hold in mind are that fifteen minutes is 0.25, twenty minutes is one third or 0.33, thirty is 0.5 and forty-five is 0.75. Everything else divides by sixty. Ten minutes is 0.17, and the recurring decimal is the reason payroll systems round.

Rounding itself is regulated in some places. Under United States federal wage rules an employer may round to the nearest quarter hour, provided the rounding does not consistently favour the employer over time — the well-known seven-minute rule, where up to seven minutes rounds down and eight or more rounds up. Rounding that only ever goes one way is not permitted, and a system that rounds every clock-in forward and every clock-out back is a wage violation regardless of how small each instance is.

Overtime is calculated on hours actually worked in the workweek, which is where paid leave creates confusion. Under federal rules, holiday and vacation hours are not hours worked, so a week containing a public holiday and thirty-six worked hours does not trigger overtime even though the payslip shows forty-four. Individual states and contracts can be more generous, and several are.

Unpaid breaks are the last item. A shift from nine to five is eight hours on the clock and seven and a half worked if the lunch break is unpaid, and whether short breaks are compensable depends on their length — under federal guidance breaks of roughly twenty minutes or less are generally paid, and genuine meal periods are not.

Counting working days between two dates

Project planning, notice periods and payment terms all depend on counting business days, and the counting is less obvious than it appears.

The first question is whether the endpoints are included. A five-day turnaround starting Monday might mean delivery on Friday or the following Monday depending on whether the start day counts, and contracts frequently do not say. The safe convention, and the one most legal drafting uses, is that a period expressed in days begins the day after the triggering event.

The second is which holidays apply. Weekends are the easy part; public holidays are jurisdictional, and a calculation for a team spread across countries has no single answer. Some holidays also move — those tied to Easter shift by more than a month across years, and several countries observe a holiday falling at a weekend on the following Monday.

The third is that business days and calendar days are used interchangeably in writing and never mean the same thing. Thirty calendar days is about four weeks; thirty business days is six. On a payment term the difference is a month of cash flow, and it is worth resolving explicitly rather than assuming.

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