Understanding Wage Conversions
Whether you are negotiating a new job offer, comparing freelance contracts to full-time roles, or just trying to budget your expenses, understanding how your pay translates across different timeframes is essential.
Hourly vs. Salary
The two most common compensation models are hourly wages and annual salaries.
- Hourly Wage: You are paid a set amount for every hour you work. If you work overtime, you are usually legally entitled to a higher rate (e.g., time-and-a-half). However, if you take time off, you do not get paid unless you have accrued paid time off (PTO).
- Annual Salary: You are paid a fixed amount per year, regardless of how many hours you work. Salaried employees often have more consistent paychecks and better benefits, but they are frequently exempt from overtime pay.
The "Freelance Premium"
If you are comparing an hourly freelance rate to a full-time salary, you cannot simply use a 1:1 conversion. Full-time employees receive "hidden" compensation in the form of benefits (health insurance, 401k matching, paid time off, and employer tax contributions).
As a general rule of thumb, freelance contractors must charge 25% to 30% more per hour than their full-time equivalents just to break even, because the freelancer must pay for their own benefits and self-employment taxes.
Common Wage Conversions (Based on 40 hr/week)
- $15/hour = $31,200/year
- $25/hour = $52,000/year
- $50/hour = $104,000/year
- $100,000/year = $48.08/hour