Ravenous Wolf

How to Calculate Hourly Pay?

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What is the correct or the best accepted way that most employers calculate hourly pay?

I want to derive the “hourly rate” from an annual base salary although there will be some assumptions. So is the following equation the way that most employers compute it:

Base annual salary divided by 52 (which is fifty two weeks in a year).

Take the sum of that value and then divide it by 5 (which is for five days in a work week).

Finally, take the sum of that value and then divide it again but by 8 (which is eight hours in a day).

For example:

Annual base salary: $70,000.00

$70,000.00 divided by 52 (weeks) equals 1346.1538461538461538461538461538

1346.1538461538461538461538461538 divided by 5 (which is for five days in a work week) equals 269.23076923076923076923076923077

269.23076923076923076923076923077 divided by 8 (which is for eight hours in a work day) equals 33.653846153846153846153846153846

Then that amount is rounded off for this hourly wage hour is: $33.65

Of course there are assumptions that I am not taking into account like working more hours in a day, if you did not work a particular day (like Christmas) then you did not get paid for it, etc but I am only concerned about the generally accepted practice for calculating that amount from a given annual amount. And part of my confusion is because 7 (days in the week) times 52 (weeks in a year) equals 364 (for the number of days in a year).

Also, another question is which place in this equation is the accepted practice to "round off" for the calculation. In the above equation I only rounded off at the very end to get an hourly wage; but where does the rounding off happen and does it really matter?

I also need to know about whether or not the inverse of that equation is still true.

That is, take an hourly wage, multiply it by 8 (eight hours in a day), then multiply that sum by 5 (five days in a work week), and finally multiply that value by 52 (fifty two weeks in a year).

For example:

An hourly wage of $32.00.

32 X 8 = 256 (a day's pay in an eight hour day)

256 X 5 = 1280 (one week's pay of a five day work week)

1280 X 52 = 66,550 (which is the annual amount if someone worked each day of a five day work week times 52 weeks)

Hence, the amount of pay for an entire year is $66,550 based on working $32.00 an hour for five days in a work week and then multiplying that sum by 52 weeks.

I am also ignoring the assumptions but is the above equation the generally accepted practice that most employers use.

Any feedback or comments would be greatly appreciated.

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Actually, you're both right. Because the 8 hours/day X 5 days/week X 52weeks/year that you keep working with is in fact 2080 hours/year.

The way WTC does it is certainly a lot easier, lol. Just memorize 2080 and make things simple.

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Just divide by 2080 and save some battery power on your calculator. :D

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Happy New Year...Ravenous Wolf

There is no reference for working 8 days a week, 25 hours a day....lol........:mrgreen:

You may want to analyze the number of with holdings - to figure the right amount of federal income tax to have withheld from your paycheck. See IRS calulator http://taxes.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=taxes&cdn=money&tm=161&f=10&su=p284.9.336.ip_p504.1.336.ip_&tt=7&bt=0&bts=0&zu=http%3A//www.irs.gov/individuals/article/0%2C%2Cid%3D96196%2C00.html

I work strictly 1099 - doing so allows me a lot of tax write offs, while my wife increased the number of dependents to allow her more take home pay.

:)

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I work strictly 1099 - doing so allows me a lot of tax write offs, while my wife increased the number of dependents to allow her more take home pay.
On the flipside, you get to pay double the payroll tax. A lot of people get tripped up on this because they get paid more as a 1099 but then they get a substantial tax bill at year's end and haven't withheld enough to pay it. I'm sure you aren't one of them, but I've seen it numerous times.

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And I have been there done that. When I accepted my first 1099 job, I didn't realize that I had to pay double SS tax and got hit with a huge tax bill! Be careful!

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yep

divide annual by 2080

first semester accounting from.....OMG, has it been 30 years already!!!

good to know some things dont change.

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I also use the number 2087.14 as it gives a more accurate calculation.

I know, it seems like I'm just being an arse by dividing 365 1/4 days by 7 (to get weeks in a year) and multiplying by 5 (to get annual work days) and by 8 (to get annual work hours), but there's a method to the madness. In borderline situations, using that number for your calculations may be just the little bit you need to make your numbers work out. If so, it's easy to justify your math. If not, just fall back on the standard 2080.

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Thanks for all the feedback. Now I simply divide by 2080 to get an hourly rate (or multiply the hourly rate with 2080).

I figure that "2087.14" is the correct number but 2080 is probably the best answer since I imagine that that is what a lot of employers use.

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I have learnt a lot about how to calculate the hourly pay. I have a small business with 20 employees working on basis. but now i have decided to change the timing basis of working and move towards hourly basis. this article help me a lot.

Edited by Wallace

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