What is your real hourly wage?
The quickest way to turn a salary into an hourly figure is to divide your annual salary by the total number of contracted hours in a year.
For example, somebody earning £50,000 and working 37.5 hours per week has a simple gross hourly equivalent of approximately £25.64.
That is a useful figure, but it assumes all 52 weeks are treated equally. In reality, an employed worker will normally receive paid annual leave.
The basic hourly-rate calculation
The basic calculation is annual salary divided by 52 weeks, then divided by weekly working hours.
How paid holiday changes the picture
Paid holiday is already included within an employee’s salary. If you receive 25 days of paid leave and work five days per week, that is equivalent to five working weeks away from work.
Instead of actually working 52 weeks, you may therefore work around 47 weeks while still receiving the same annual salary.
The salary has not increased, but it is being earned across fewer hours actually worked.
Which hourly rate should you use?
Neither figure is universally right or wrong. They answer different questions.
The headline hourly rate is useful when you simply want to convert a salary into an hourly equivalent. The effective working-hour rate can be more useful when comparing employment with freelance or contract work.
What else should you consider?
Your salary may not represent the full value of your employment package. Employer pension contributions and other benefits may add additional value.
Equally, regularly working unpaid overtime can reduce what you are effectively earning for each hour of your time.
- Employer pension contributions
- Paid holiday
- Unpaid overtime
- Bonuses and other benefits
- Your actual weekly hours
- Sick pay and other employment protections
Why this matters when comparing freelance work
A freelance hourly rate cannot usually be compared directly with an employee hourly rate.
Freelancers normally do not receive paid holiday and may also need to fund their own pension, insurance, equipment and periods where they have no billable work.
Understanding the value of your current employment gives you a much better starting point when deciding what freelance rate would make a change worthwhile.
Put your salary into numbers
Compare your current employment package with a freelance scenario using your own salary, working hours, holiday and pension assumptions.
Compare salary vs freelanceWorkSmart Money provides calculators and educational content to help make work and money decisions easier to understand. Figures and examples are illustrative and should not be treated as personal financial advice.