How to Calculate Your Hourly Rate
Understanding your hourly rate is essential whether you are a full-time employee negotiating a salary or a freelancer setting your project fees. Many people simply divide their annual salary by 2,000 (the approximate number of work hours in a year), but a precise calculation involves more variables like vacation time and actual weekly hours.
The Hourly Rate Formula
To find your true hourly rate, we use the following mathematical logic:
1. Calculate Total Annual Hours: (Weeks per Year × Hours per Week) – (Vacation Days converted to hours).
2. Divide Salary: Total Gross Salary ÷ Total Annual Hours = Hourly Rate.
Example Calculation
If you earn a gross annual salary of $75,000 and work a standard 40-hour week for 52 weeks a year, with 10 days of unpaid leave, your calculation would look like this:
- Total possible hours: 52 weeks × 40 hours = 2,080 hours.
- Unpaid leave hours: 10 days × 8 hours = 80 hours.
- Actual working hours: 2,080 – 80 = 2,000 hours.
- Hourly Rate: $75,000 / 2,000 = $37.50 per hour.
Why Knowing Your Hourly Rate Matters
For freelancers, your hourly rate must cover not just your take-home pay, but also taxes, insurance, and overhead. For employees, knowing this number helps in comparing job offers that might have different hours or benefits packages. It also allows you to put a value on your "overtime" or "side hustle" time to ensure you aren't undercutting your primary earning potential.