How to Calculate Your Hourly Income - dummies

How to Calculate Your Hourly Income

No matter your occupation, everyone sells time for a price; it’s just a lot more transparent in some situations than others. Most obvious are individuals who receive a wage or a fee based on the hours they work, including minimum‐wage workers and self‐employed individuals such as tutors, house cleaners, and consultants.

What you are paid per hour is based on the activities you do and the skill you bring to the marketplace. A pilot, by that nature of the skill and what pilots do, has more value than a flight attendant. There are fewer people who could pilot the plane than serve as a flight attendant.

If you are a lower‐wage earner, it’s because the job you currently have does not have the value to pay you more. If you stay in the present position, you might gain raises over time, but there will be a limit. A fast-food counter worker will not be paid \$50 an hour . . . ever.

Your objective should be to raise your value so you can advance to a higher‐value job that pays more. Too many people focus on the wrong area. A low‐wage job is there to help you acquire skills, show aptitude, passion, drive, and commitment. No one is supposed to stay at that pay for his or her whole life. Wage ladders enable you to climb up to higher compensation levels, but you have to do the climbing!

Other people advertise their prices based on a per‐project basis, but in reality base that fee on an estimate of project hours the job takes. Freelance writers, for instance, may charge \$1,500 to write a promotional brochure, but that amount is likely a reflection of the writer’s value of his or her time at a certain figure — say, \$75 per hour multiplied by 20 hours of production time.

Some businesses and professions charge customers based on an hourly rate, although workers don’t directly receive that per‐hour fee. Instead, their salary or compensation is based on the revenue the company can bring in based on those hours. Law firms and plumbers, for example, may charge for their services on an hourly basis and pay their employees a salary or a per‐hour rate.

If you earn a salary, you may not perceive yourself as having an hourly rate. But everyone does. Here’s how to calculate your hourly income. This number doesn’t affect how you’re paid, but it puts you in touch with what an hour of your work time brings you.

1. Calculate the number of hours you work per week.

Work hours/day x days/week + overtime = hours/week

To be completely accurate, calculate your hourly rate based on the hours you actually work. If you consistently put in more than 40 hours a week (most salaried folks aren’t paid overtime for additional hours worked), add those hours to your total. Here’s an example:

8 hours/day x 5 days/week + 2 hours overtime = 42 hours/week

2. Figure out how many hours you work per year.

Work hours/week x weeks/year = hours/year

Make sure you subtract time off. For instance, if you take three weeks of vacation each year, subtract that from your total number of weeks worked. If your salary is based on a three‐week vacation and an average 42‐hour work week, here’s how many hours you work per year:

42 hours/week x 49 weeks/year = 2,058 hours/year

3. Divide your gross salary by the number of hours you work per year.

Salary / hours/year = hourly income

For instance, \$80,000 divided by 2,058 hours is \$38.87.