Most wages paid to employees are either at an hourly rate or an annual salary. For salary employees, the annual wage includes at least 10 paid vacation days. For hourly workers, 4% vacation pay is normally accrued on top of the hourly wage.
Many employees are paid bi-weekly, that is 26 pay dates each year. However, every 11th year employers process an extra pay (27th). For weekly payroll, every 7th year employers process an extra pay of the year (53rd). Therefore, employees can actually receive more or less than their annual rate of basic pay in a given calendar year.
Since bi-weekly pay periods and calendar years do not coincide, the following factors are used to determine the paid amount on a bi-weekly basis.
Translating an annual salary to an hourly or bi-weekly rate can be tricky.
What is the average work week?
It can be 40 hours, 37.5 or some other "standard" number.
How many weeks in a year?
Most will calculate 52 weeks, but the actual number is 52.1775 (365.2425 / 7).
The average length of a calendar year is 365.2425 days taking into account leap years.
To calculate the number of hours per calendar year, depends on the number of hours worked per week.
If you use 40 hours a week, take 52.1775 x 40 hrs = 2,087 hrs per year.
If you use 37.5 hours a week, take 52.1775 x 37.5 hrs = 1,957 hrs per year.
Another way is to use the two (2) week gross factor of 26.088 The 26.088 bi-weekly pay factor is arrived at by dividing 365.2425 / 14 = 26.088 So an employee with an annual salary of 52,000 would be paid 1,993.25 every two weeks (52,000 / 26.088) whether 26 or 27 pay dates per year.
The one (1) week gross factor is 52.1775 So an employee with an annual salary of 52,000 would be paid 996.60 every week (52,000 / 52.1775) whether 52 or 53 pay dates per year.
How do you calculate an hourly wage from an annual salary ? Let's us a $60,000 salary in our example. We have to establish the number of working hours per year. Salaried employees typical work 40 hours a week.
How we handle vacation makes the difference. Let's say you take 2 weeks off each year as unpaid vacation time. You would then be working 50 weeks times 40 hours per week for a total of 2,000 hours. Your annual salary of $60,000 then works out to $30.00 per hour.
Now let's say you get paid for your 2 weeks vacation each year. You would then be paid 52 weeks times 40 hours per week for a total of 2,080 hours. Your annual salary of $60,000 then works out to $28.85 per hour.
52 weeks or 364 days is not equal to a full calendar year. A year consists of 365 or 366 days. The federal government used 2,080 hours (52 x 40) until 1984. It was demonstrated that over a 28 year period there are on average 2,087 work hours per calendar year. Your annual salary of $60,000 then works out to $28.75 per hour.
What about other holidays, like New Years Day, Labor day, Thanksgiving, Christmas, etc. Most companies give employees those days off as paid days, so these examples are not affected.
| $60,000 annual salary (40 hrs) | ||
| 50 weeks | 2,000 hrs | $30.00 per hour |
| 52 weeks | 2,080 hrs | $28.85 per hour |
| 52.1775 weeks | 2,087 hrs | $28.75 per hour |
For contracts based on a 7.5 hour day, we use a 37.5 hour work week.
| $60,000 annual salary (37.5 hrs) | ||
| 50 weeks | 1,875 hrs | $32.00 per hour |
| 52 weeks | 1,950 hrs | $30.77 per hour |
| 52.1775 weeks | 1,957 hrs | $30.66 per hour |