There are many different ways to receive income for employment, and there are slight differences in how that might affect your taxes, cashflow, and many other parts of your life. Some employees are paid hourly, earning a set amount for every hour that they work.
Others might be paid hourly but also receive tips or other compensation. Still others are paid on a monthly or annual salary, earning a flat amount regardless of how many hours they work.
And if you're a business owner, consultant, or freelancer then you may be paid for completion of a particular task or milestone. To help compare different jobs, it can be useful to know how to convert an hourly wage to an annual salary.
The Difference Between An Hourly Wage And Salary
An employee being paid hourly receives a set amount for each hour that they work. So someone that earns $15/hour and works 20 hours in a week would have a gross income of $300 (15 multiplied by 20). The amount that an hourly employee gets paid is directly correlated to the number of hours that they work. The more that you work, the more you get paid. If your hours are cut, you may have a smaller paycheck.
In contrast, a salaried employee's compensation is not tied to the number of hours that they work. Instead, salaried employees are usually compensated and evaluated based on specific accomplishments and achievements. Unlike hourly employees, salaried employees typically do not have to track their hours or clock in or out.
However, if a salaried employee is asked to work additional hours, it won't translate to extra earnings. While you might get a pat on the back from your boss, working extra hours as a salaried employee doesn't entitle you to more pay.
A Simple Calculation
Being able to convert an hourly wage to an annual salary can come in handy when trying to compare two jobs. You may not know at first glance whether a job paying $25/hour earns more, less, or the same as one paying a $50,000 annual salary. Thankfully, there is an easy trick to convert an hourly wage to an annual salary, assuming a 40-hour workweek.
That is because there are about 2,000 hours in a standard work-year. There are 52 weeks in a year, and if you work 40 hours per week, it equates to 2,080 hours. For convenience, we'll round that to 2,000 hours to make the math easier - and especially because if you work hourly and take two weeks off per year, that's 2,000 hours.
So to convert an hourly wage to an annual salary for a full-time employee, just multiply the hourly wage by two and then add three zeros. So a $25/hour job is approximately equal to a $50,000 salary (25 multiplied by 2 is 50, and then add 3 zeros to get $50,000).
The following chart illustrates this calculation, using various hourly rates, based on a full-time job with 2,000 hours worked over a 52-week period:
Hourly Wage | Annual Salary (approx.) |
|---|---|
$15/hour | $30,000/Year |
$20/hour | $40,000/Year |
$25/hour | $50,000/Year |
$30/hour | $60,000/Year |
$50/hour | $100,000/Year |
How To Convert Hourly Wage To Annual Salary
This simple multiplication trick only works if you're using a 40 hour workweek. The math is different for a different number of weeks. Here are a few examples you can use.
Working 40 Hours Per Week As A Salary
As demonstrated above, if you're working 40 hours a week, you can just double your hourly rate and add three zeros to the end to get your approximate equivalent annual salary. Making $20/hour while working 40 hours per week is roughly equivalent to a $40,000 annual salary.
Working 20 Hours Per Week As A Salary
If you are working part-time at around 20 hours per week, it's also fairly easy to calculate. You can just take your hourly wage and calculate it as that many thousands of dollars. That's because 20 hours a week for a whole year is approximately 1,000 hours. Someone making $30/hour for 20 hours has an approximate annual salary of $30,000.
Working 30 Hours Per Week As A Salary
If you work 30 hours per week, the math is a bit more complicated, but still not too difficult. 30 hours per week is about 1,500 hours for an entire year. So you can multiply your hourly rate by 1,500 to get an approximate annual wage. You can also just take the numbers for 20 hours per week and 40 hours per week (which might be easier to calculate in your head) and then split the difference. Someone working 30 hours per week at $20 / hour would make an approximate annual salary of $30,000.
Minimum Wage As A Salary
Figuring out how to convert a minimum wage job to an annual salary depends on how much you're making per hour and also how many hours per week you work on average. You can calculate an approximate annual salary for a minimum wage job by multiplying your hourly rate times your average number of hours worked in a week times 52 weeks in a year. Someone making $15/hour and working an average of 27 hours per week would make an annual salary of $21,060 (before taxes).
Don't Forget To Factor In Overtime
When you work hourly, you typically are eligible to receive overtime. While overtime rules vary from state to state, it's common to get overtime pay after 40 hours in one workweek, or after working 8 hours in one day. There are also rules where the 7th day straight of work is eligible for overtime.
Most overtime is "time and a half" - meaning you multiply your base hourly pay by 1.5 for each hour worked. Sometimes you get "double time", meaning you get 2x your hourly pay.
In some jobs (looking at trades, emergency services, and others), overtime is a big component of the overall total compensation. But it does mean you're working these shifts too.
When you're salaried, you're not eligible for overtime. You simply get your annual salary no matter what. Whether you work 40 hours per week, 50 hours per week, or 30 hours per week - you get paid the same. That could be a disadvantage depending on the individual and the position.
If you find yourself working more than 40 hours per week on salary (or not taking your vacations), you're essentially giving yourself a paycut.
The Bottom Line
There are two main ways people get paid - via salary or as an hourly rate. There are pros and cons to both forms of payment, but it can be useful to convert your hourly wage to an annual salary. This can help if you're trying to compare the compensation of an hourly job and a salaried position.
Remember, if you are working 40 hours per week, converting an hourly wage to a salary is easy. Just double your hourly rate and add three zeros - a $20 hourly rate is approximately an annual salary of $40,000.
Editor: Colin Graves Reviewed by: Chris Muller
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.