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Converting Salary to Hourly Rate for contract employment

29 Jan, 2016

Converting Salary to Hourly Rate for contract employment

Among the most frequently asked questions from job seekers converting from salaried to a contract position is that of compensation. Specifically, how to convert their current or desired salary to an hourly rate on a W-2 contract assignment. The following steps can be used as a guide:

  • Divide you annual salary by 2080 (annual hours worked) to arrive at the raw hourly rate {A}
  • Multiply your raw hourly rate {A} x number of desired vacation days x 8 (hours per day) {B}
  • Add in your annual health insurance premiums {C}
  • Add your annual salary + Vacation Pay {B} + annual health insurance premiums {C} and divide by 2080 to arrive at your hourly rate inclusive of basic benefits

As an example, assuming an annual salary of $100,000, 3 weeks of vacation, and $4800 in health insurance premiums, the hourly rate would be:

  • $100,000 / 2080 = $48.08{A}
  • $48.08 * 15 vacation days * 8 hours/day = $5769.60{B}
  • $100,000 + $5769.60 + $4800=$110,569.60
  • $110,569.50 / 2080 = $53.16

You can add other benefits such as employer’s 401(k) contributions to this formula, however, it is important to note that the job market ultimately determines the going rate for your skill set. You must set realistic expectations by researching the job boards to gauge what the employers are paying for your skills. There are other benefits to working contract which should also be considered in addition to your compensation.