People who are switching from an hourly wage to an annual salary often want to do the math to determine their new hourly rate. The math involved to accomplish this is relatively simple. Finding the exact numbers to put into the calculations is not always such an easy chore.

Obviously, the annual salary is not a problem because you already know that amount since it was presented to you with the new job, promotion, or raise. Determining how many hours per year that you will work is another issue. Most companies prefer to switch employees of a certain level job classification from hourly to salary. The reason for this is to save paying overtime at the new hefty salary.

When positions reach a certain level, they are considered professional rather than working class. At that point, it is legal and traditional to transition the position from hourly to salary. Companies like this because it allows them to take employees who have been working many hours as non-exempt employees and convert them to exempt employees. They can give a nice sized hourly rate increase while actually decreasing the cost of the employee to the company because of overtime savings. Exempt employees are “exempt” from the overtime laws.

The first thing that you have to do when determining an hourly rate from an annual salary is decide how many hours per week is expected for that rate of pay. Most companies based their salary structure on 35, 37 1/2, or 40 hour weeks. Some companies tell salaried employees that a larger number of hours is expected in exchange for the larger paycheck. This can range from 45 up to about 60 hours per week.

If you have been performing in this position for a while, you should just keep track of the real number of hours that you work per week over a month or so to use as your basis for the calculations. Disregard any perks such as a car, vacation, travel, etc. because these are not actually spendable income for you and your family even if it saves you some money from your budget.

Take the number of hours that you are expected to or actually work per week and multiply it times 52 weeks in a year. For a 40 hour work week, this would compute to 2080 hours per year. Now, divide the annual salary by the number of hours that you will work per year. If you make $41,600 per year for a 40 hour work week, this will compute to $20 per hour.

Once most people get used to having their pay described by an annualized amount, the hourly wage becomes much less important. Salaried employees tend to look at their take home pay per pay period. Knowing how much that you have to spend each time that you get paid is more important that knowing how much you are making each time an hour clicks off of the clock.