What is Hourly to Salary Conversion?
Hourly to salary conversion translates an hourly wage into its annual salary equivalent (and vice versa) to enable fair comparisons between compensation structures. This is essential when evaluating job offers, negotiating pay, comparing contractor vs employee costs, or budgeting for labor costs across different pay structures.
The Formula
Annual Salary = Hourly Rate × Hours per Week × 52 Weeks Hourly Rate = Annual Salary ÷ (Hours per Week × 52)
For benefits-adjusted comparison, multiply employee hourly rate by 1.3-1.4x to account for health insurance, PTO, retirement, and payroll taxes.
Worked Example
A contractor earns $65/hour working 40 hours/week. A comparable employee role offers $115,000 salary with benefits.
- Contractor annual = $65 × 40 × 52 = $135,200
- Employee total comp = $115,000 × 1.35 (benefits) = $155,250
- Contractor effective rate = $135,200 (no benefits, PTO, or stability)
- Employee effective hourly = $115,000 ÷ 2,080 = $55.29 + benefits value ≈ $74.64
📌 The contractor earns more in gross income ($135K vs $115K), but the employee's total compensation with benefits is higher ($155K). The contractor also bears all tax burden and receives no PTO.
Why This Matters
Fair compensation analysis
Without proper conversion, you can't compare job offers with different structures. A $100/hour contract role is not equivalent to a $200K salary once you factor in benefits, taxes, and non-billable time.
Hiring budgets
Converting hourly contractors to full-time employees changes cost structure significantly. A $75/hour contractor costs $156K/year in billings but a $120K employee costs $156K fully loaded, similar total but different cash flow patterns.
Workforce planning
Understanding the true hourly cost of salaried employees helps you price projects, calculate margin on client work, and determine whether to hire or outsource.
Common Mistakes
❌ Comparing raw numbers without adjusting for benefits
A $50/hour contractor rate is not comparable to a $100K salary ($48/hour). The salaried position includes $25-35K in additional benefits value.
❌ Using 2,080 hours for actual work time
Salaried employees work 2,080 total hours but after PTO, holidays, sick days, and meetings, productive hours are closer to 1,600-1,800. Adjust accordingly.
❌ Forgetting self-employment taxes for contractors
Contractors pay an additional 15.3% self-employment tax (Social Security + Medicare). A $65/hour gross rate is effectively ~$55/hour after SE tax.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| Benefits Multiplier (US) | 1.25x | 1.30-1.40x | 1.45x+ (expensive benefits) |
| Contractor Premium | 30-50% above equivalent salary | 20-30% | Below 20% (underpriced) |
| Effective Working Hours | 1,800+ | 1,600-1,800 | Below 1,500 |
Source: Payoneer Global Freelancer Income Report
Benchmark data sourced from Payoneer Global Freelancer Income Report.