Whether you’re scaling up, restructuring, or just trying to keep your top talent from jumping ship, understanding when and how to move from an hourly wage to a salary structure could be the game-changer you’re looking for. We’ll explore what this conversion means, when to consider making the switch, what factors to look for, and common FAQs.
What is Hourly to Salary?
Hourly to salary is a calculation used to determine a worker’s annual salary based on their hourly pay.
How to Convert an Hourly Rate to Salary
To determine how much your yearly salary is based on your hourly rate, use the following formula:
Hourly Rate x Hours Worked per Week x 52 Weeks in a Year = Annual Salary
Hourly to Salary Examples
The following examples are based on a standard 40-hour workweek:
- $16 an hour is $33,280 per year ($16 x 40 hrs x 52 weeks)
- $25 an hour is $52,000 per year
- $40 an hour is $83,200 per year
How to Calculate Hourly Rate from Salary
Conversely, to determine how much your hourly rate is based on your annual salary, follow this formula:
Annual Salary / (Hours Worked per Day x Number of Days Worked per Year) = Hourly Rate
Example Calculation
Let’s say you work eight hours a day for 240 days a year—that’s 1,920 hours. If your annual salary is $57,600, divide this number by 1,920 hours to find your hourly wage ($30 per hour).
Alternatively, if you consistently work 40 hours per week, you can do a quicker, one-step calculation:
Annual Salary / 2,080 hours = Hourly Rate
For example: $57,600 / 2,080 hours = $27.69 an hour
Salary to Hourly Examples
In the following examples, the salary-to-hourly calculations are based on a standard 40-hour workweek:
- $52,000 per year is $25 an hour
- $75,000 per year is $36.06 an hour
- $100,000 per year is $48.08 an hour
When to Use an Hourly to Salary Conversion
Hourly workers, job seekers, and employers can all use the hourly to salary formula to achieve different goals:
- To Project Annual Income: Hourly workers often use the hourly-to-salary formula to calculate their projected weekly, monthly, or annual income for financial planning purposes.
- For Applications and Large Purchases: An hourly worker looking to rent an apartment will likely need to know their annual income. Your income is also used to determine what you can afford when making a large purchase, such as a home.
- To Ensure a Fair Annual Salary: The hourly-to-salary calculation is helpful for hourly employees or independent contractors considering salaried job offers.
- To Determine a Compensation Offer: Employers who are converting hourly workers or contractors to full-time employees can use this formula to determine a fair compensation offer for their new hires.
Hourly to Salary Additional Costs
Before transitioning an employee from hourly wages to a salary, you should read the Department of Labor’s guidelines. You should also consult your state-level employment law and latest company policy to identify additional requirements associated with paying a salary, like minimum wage, overtime, paid leave, and disability insurance.
Common additional costs on top of the face-value hourly to salary conversion include healthcare and pension contributions. Your company may also include other discretionary benefits, including childcare contributions, gym membership, public transportation discounts, and more.
Which is better? Salary vs. Hourly
Both salary and hourly pay have distinct benefits and disadvantages. What works best for you depends on your lifestyle preferences and needs.
Benefits of Salary
- Financial Security: Salaried employees know how much money they’ll earn each paycheck, providing stability.
- Benefits: Salaried roles often come with additional benefits like health insurance, retirement plans, and bonuses.
- Paid Time Off: Salaried employees usually get paid time off for sick days, personal days, and holidays.
Benefits of Hourly
- Flexibility: Hourly positions often offer more flexibility, allowing workers to take on a second job, go to school, or care for family.
- Overtime Pay: Hourly workers are typically entitled to overtime pay, providing the potential for higher earnings.
Considerations
Whether you convert from hourly to salary or salary to hourly, these figures represent gross income. This is your income before any payroll deductions are made for taxes, employee health insurance, etc. Your take-home pay after deductions will be less.
Hourly to Salary: Pros and Cons
Transitioning an employee from hourly to salary pay comes with certain advantages and disadvantages to the business, which may equate to higher or lower employment costs. Besides financial obligations such as pension contributions and overtime pay, there are also qualitative factors like the reassurance of a stable working relationship.
Pros
- Overtime Savings: Salaried employees must perform their duties across a set number of hours per week. If they require more time to complete their tasks, your business does not need to pay overtime. By contrast, an hourly worker gets paid overtime beyond 40 hours a week at a 50% higher rate, as per FLSA guidelines.
- Greater Certainty: A salary provides stability for both employee and employer. Salaried employees are expected to stay with the business for the foreseeable future. By contrast, hourly workers may not be available when the employer needs them, as they have greater flexibility over their schedule.
- Lower Recruitment Costs: Salaried employees have more opportunities to engage with their teams and company, leading to higher job satisfaction and lower turnover. Hourly workers can be less committed to team building and often have a higher turnover by comparison, inducing higher recruitment costs.
Cons
- Healthcare Costs: If you have over 50 employees, you must provide healthcare coverage to staff working 30 or more hours a week. This cost can be avoided if hourly employees work less than 30 hours per week on average.
- Workflow Flexibility: When business is slower than usual—for example, during non-peak season in the hospitality industry—salaried staff still get paid, whereas hourly workers can be scheduled not to come in. While cutting hours isn’t ideal for hourly employees’ income security, it offers businesses the flexibility to assign tasks when they’re needed most.
- Employee Lifestyle: Salaried staff may have a relatively less balanced lifestyle than hourly workers, who often have more control over their schedule and a clearer separation between work and personal life. Thus, employing staff on a salary can come with a higher risk of burnout and lower productivity.
Let's Sum It Up
Converting from hourly to salary isn’t just about changing a number on a paycheck. It’s a deep dive into how we value our people, manage our resources, and strategically position our organizations for future growth. By considering factors such as job nature, current pay rates, and legal compliance, and using the right tools, you can make this transition smooth and beneficial for all parties involved. Stay curious, stay informed, and let’s keep making those smart moves!
FAQs
Can hourly employees legally be switched to salaried positions?
Absolutely, but you must ensure compliance with state and federal labor laws. Be wary of the Fair Labor Standards Act (FLSA) criteria that employees must meet to be classified as exempt. In South Africa, compliance with the BCEA is crucial.
Does switching to salary mean no more overtime payments?
For exempt employees, yes, but non-exempt employees must still meet overtime requirements. So categorizing them correctly is key.
How do I calculate the equivalent salary from an hourly rate?
Multiply the hourly rate by the average number of hours worked in a week (usually 40), then multiply by 52 weeks in a year.
What if my employee doesn’t want to switch to a salary?
Open dialogue is crucial. Discuss benefits like stability, potential for bonuses, and growth opportunities. However, understand that some may prefer hourly wages for the potential overtime.
Do benefits change when switching from hourly to salary?
They can! Salaried roles often come with additional benefits like health insurance, retirement plans, and bonuses that can be attractive to employees.
How does the conversion affect tax deductions in South Africa?
The South African Revenue Service (SARS) has specific guidelines on tax deductions for salaried employees. Ensure you’re up to date with these regulations to avoid any tax compliance issues.
Are there industry-specific considerations for hourly to salary conversion?
Yes, different industries may have unique factors to consider. For example, the hospitality and construction sectors often have varied working hours and might handle conversions differently compared to a tech company.
