Dividing your salary by 2,080 gives you a number. Whether it is a useful number depends on how many hours the job actually takes.
The straightforward conversion
Annual pay divided by hours worked per week times weeks worked per year. The common shortcut divides by 2,080, which assumes forty hours across all fifty-two weeks.
That shortcut is right if your holiday is paid, because you are paid for those weeks whether you are at a desk or not. If your time off is unpaid, reduce the weeks and your hourly rate rises — you are earning the same money in fewer hours.
The number that actually compares two jobs
The contract counts the hours it pays for. Your life counts all of them. Three things routinely separate the two:
- Unpaid overtime. The hours that are expected rather than compensated. Five a week on a forty-hour job is an 11% pay cut that never appears on a payslip.
- Commuting. Unpaid, not optional, and unavailable for anything else. Whether you count it is a judgement call, but it is time the job takes.
- The cost of showing up. Transport, parking, work clothes, bought lunches, childcare that exists because you are at work.
A concrete case: 60,000 a year, forty paid hours, fifty working weeks gives 30 an hour. Add five hours of unpaid overtime, five hours of commuting and 250 a month of job costs, and the true figure is 22.80 — 24% lower. Two offers separated by 10% on paper can easily be identical, or reversed, once this is done.
A role paying 10% more with an hour longer commute each way is not a 10% raise.
Freelancers: the gap is much wider
If you bill by the hour, your rate is not your rate. Between the billable hours sit admin, invoicing, marketing, proposals that go nowhere and the unpaid gaps between clients — for many freelancers that is a third of the week or more.
Add business costs and self-employment taxes, which an employee never sees because an employer absorbs them, and a 60-an-hour billing rate can be a 30-an-hour job. This is the arithmetic behind the standard advice to charge substantially more than the salaried equivalent. It is not a markup; it is a correction.
Any hourly figure calculated from gross pay is before tax. If you want the number that describes what actually reaches you, start from your take-home pay instead. It is a smaller and considerably more honest figure to make decisions with.
Three ways to use the number
- Price your own time. If an hour is worth 25 to you and a task you hate costs 20 to outsource, that is arithmetic, not indulgence.
- Convert prices into hours. Uncomfortably clarifying. A 400 gadget is not 400, it is a week and a half of mornings.
- Compare offers properly. Salary, hours, commute and costs together. The biggest number on paper loses more often than people expect.
The limit of the exercise
Not everything a job gives you converts into an hourly rate. Pension contributions, health cover, job security, whether you learn anything, and whether you like the people are all real and none of them are in the formula.
The point is not to reduce work to a number. It is to make sure the number is honest before you weigh it against everything else.