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Converting Salary to Hourly Rate for contract employment

Converting Salary to Hourly Rate for contract employment

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

Divide your 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 + Paid Holidays x 8 (hours per day) {B}
Add in your annual health insurance premiums {C}
Add your annual salary + Vacation / Holiday 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 + 6 paid holidays, and $4800 in health insurance premiums, the hourly rate would be:
$100,000 / 2080 = $48.08{A}
$48.08 * 15 vacation days + 6 paid holidays * 8 hours/day = $8077.44 {B}
Salary $100,000 + Vacation & Holidays $8077.44 + Health Insurance $4800=$112,877.44
$112,877.44 / 2080 = $54.27 Contract / Consulting hourly rate

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.

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