Converting Hourly Pay to Annual Salary
The standard full-time hourly-to-annual conversion is hourly rate × 40 hours × 52 weeks = 2,080 hours per year. A $25/hour wage becomes $52,000/year gross. However, this baseline misses two important variables: weeks actually worked and overtime pay. Someone who takes two weeks of unpaid leave works only 50 weeks, making their actual annual income $50,000 at $25/hour. Overtime at time-and-a-half compounds further — 5 overtime hours per week at $37.50/hour adds $9,750 to the $50,000 base, bringing total annual income to $59,750.
This gap between the "standard" conversion and actual annual pay surprises many workers when they calculate their real income. Using actual weeks worked instead of 52, and accounting for overtime, gives a much more accurate picture for budgeting, tax planning, and comparing job offers that mix salary and hourly positions.
Hourly vs Salary: What the Conversion Misses
Hourly and salaried positions have structural differences beyond the pay rate conversion. Hourly workers are typically covered by the Fair Labor Standards Act (FLSA), which mandates 1.5× overtime pay for hours over 40 per week for non-exempt employees. Salaried "exempt" employees receive the same pay regardless of hours worked — 45-hour weeks and 55-hour weeks both earn the same salary. This means a $52,000 salaried position that regularly requires 50 hours/week has an effective hourly rate of $20/hour, significantly below a $25/hour hourly position with a true 40-hour week.
Benefits also factor into the true compensation comparison. Hourly positions sometimes exclude or limit health insurance, retirement matching, and paid time off. When comparing an hourly offer to a salaried one, add the dollar value of employer-paid benefits (typically $8,000–$15,000/year for a full benefits package) to the salaried side before comparing.
Unpaid Time Off and the "Real" Annual Income
Hourly workers only earn when they work. Sick days, personal days, and vacation all reduce annual income unless they're covered by paid-time-off (PTO) policies. An hourly worker averaging 2 sick days and 10 vacation days per year unpaid loses 12 days × (hours/day × hourly rate) = $1,500–$2,400 from their theoretical annual figure. The weeks-per-year input in this calculator lets you account for this: enter 49 if you typically lose 3 weeks of pay annually to unpaid time off.
Overtime Pay Rules
Federal law (FLSA) requires 1.5× pay for hours over 40 per week for covered non-exempt employees. Some states have additional rules: California mandates 1.5× for hours over 8 per day and 2× for hours over 12 in a day, regardless of weekly total. Alaska, Nevada, and a few other states have similar daily overtime rules. Highly paid employees (earning over $107,432/year) may be exempt from overtime regardless of job title. Misclassification of employees as exempt when they should receive overtime is one of the most common wage theft violations — if you regularly work over 40 hours and are not receiving overtime pay, check whether your position actually meets the exemption criteria.
Planning Around Variable Hours
If your hours vary week to week (gig work, seasonal employment, contract positions), use your average weekly hours rather than a fixed number. Track actual hours for a month to find your true average. For seasonal workers who may work intensely for 6 months and have 6 months slow, the annual income calculation should use the realistic annual hour total, not 40 × 52. Budgeting on a variable income requires calculating a realistic annual figure and then building monthly cash flow around that average, keeping 2–3 months of expenses in a buffer to smooth the slow periods.