For more than 82 million U.S. workers, figuring out how much money they earn per hour is easy: a quick look at their pay stub reveals all. That's because according to the Bureau of Labor Statistics (BLS), 58.1% of the American workforce is paid hourly.
However, if you're part of the 41.9% of the labor force that's salaried, you might not be entirely sure of how much you make per hour. What's more, you might not be all that concerned with determining your hourly rate. You know your annual salary, e.g. $30,000 or $50,000 or $75,000 per year, and that may seem like it should be enough.
But there are very good reasons for figuring out how much you earn on an hourly basis. Your paycheck might have a very different impact on your budget if you're forced to work round the clock to earn it. Working 40-hour weeks for $120,000 per year is remarkably different than working 90-hour weeks for $120,000 per year.
To discover the value of your time, you need to ask yourself: How much do I make hourly?
Here's how to calculate how much you make an hour:
The Rough Estimate: Lop Off Zeros, Divide By 2
The rough way to figure out your hourly rate is to assume that you work 2,000 hours per year.
Why 2,000 hours? We're assuming you work full-time, with two weeks vacation, and no overtime. Forty hours per week multiplied by 50 working weeks per year equals 2,000 hours.
Although employers are not required by federal law to provide paid vacation time, more than a third of private-sector companies offer at least two weeks of paid leave to employees after a year's tenure.
With this assumption in mind, simply take your annual salary, lop off three zeros from the end, and divide the remaining number by two.
You earn $40,000 per year.
Lop off three zeros - $40
Divide by two - $20
You earn $20 per hour.
You earn $70,000 per year.
Lop off three zeros - $70
Divide by two - $35
You earn $35 per hour.
You earn $120,000 per year.
Lop off three zeros - $120
Divide by two - $60
You earn $60 per hour.
The Precise Method: Ratio Analysis
Of course, the method we listed above is a rough estimate. Not everyone works a standard 40-hour week with no overtime.
Some people work 50- or 60- or 80-hour weeks. Others work part-time.
To resolve this, we turn to the more precise method of figuring out how much you earn per hour. It's called the "ratio analysis" method.
Sounds technical, huh? Relax. Don't let that phrase scare you—this is a pretty simple method.
Ratio analysis involves calculating the relationship between the hours you spend at work and your income. If you earn $400 for a 40-hour week, your dollar-to-hour ratio is 10-to-1 (or $10 per hour).
Let's assume you get a raise to $500 per week. On the surface, it might seem like your dollar-to-hour ratio has now increased to 12.50-to-1. ($500 divided by 40 = $12.50 per hour.) Hooray!
But the promotion forces you to work 60-hour weeks. Your dollar-to-hour ratio is only 8.3-to-1. ($500 divided by 60 = $8.33 per hour).
In other words, your salary has gone up, but your hourly rate has gone down.
Let's run through a few more samples:
You earn $38,000 a year.
You work 40 hours per week, with three weeks of vacation.
Working time = 40 hours x 49 weeks = 1,960 hours per year.
$38,000 / 1,960 = $19.38 per hour (or a dollar-to-hour ratio of 19.4-to-1.)
You earn $18,000 a year.
You work 15 hours per week, with three weeks of vacation.
Working time = 15 hours x 49 weeks = 735 hours per year.
$18,000 / 735 = $24.48 per hour (or a dollar-to-hour ratio of 24.5-to-1.)
(For this example, we'll calculate your pay weekly. The method works the same way.)
You earn $350 a week.
You work 20 hours per week.
$350 / 20 = $17.50 per hour (or a dollar-to-hour ratio of 17.5-to-1.)