You may know how much to expect in your paycheck each period, but how does that number translate into annual pay? Knowing how much you earn in a year is impactful for a variety of reasons, from applying for loans and credit cards to gauging financial status for large purchases. Plus, understanding the basics of pay is foundational for financial literacy and preparedness.
How Do You Calculate an Annual Salary?
Let’s start with a simple equation:
Salary = hours worked x hourly rate x weeks worked
Calculating your annual salary depends on whether you’re a non-exempt employee who is paid by the hour, or an exempt employee who is paid a set salary, but could be eligible for bonuses, raises and other incentive payments.
If you’re non-exempt, or an hourly wage earner:
To calculate your annual salary as an hourly employee whose hours aren’t fixed, find the weekly average of hours worked over a one-month period and multiple that by your rate of pay, then multiple that number by 52 weeks (the number of weeks in a year).
For example, let’s say you’re an hourly employee making $15 per hour. You work 10 hours the first week of the month, 15 hours the second, 20 hours the third, and 15 hours the fourth. Add the total number of hours, which is 60, and divide by four to get the weekly average of 15 hours worked per week. To calculate your average annual salary, you would multiply 15 hours a week by 15 dollars an hour. Then multiply that by 52 weeks.
Average annual salary = 15 x 15 x 52 = $11,700
If you’re exempt or a salaried employee:
If you’re exempt, you likely negotiated your annual salary up front. However, if you want to calculate your gross salary, you have to add any bonuses, raises and incentive payments you receive in addition to your annual salary.
Understanding the difference between annual salary, gross salary and net salary
Annual salary is the base payment you and your employer agreed on upon hiring—the number on your offer letter. Your gross salary is your base plus whatever extra income you bring in, including commissions, bonuses, and incentive payments. For example, if you’re a salaried employee with a $20,000 annual salary, but you received an incentive bonus of $2,000, your gross salary is $22,000.
Whereas gross salary is the amount you pay before taxes, your net salary is the amount of pay you receive after all taxes have been deducted. So, if, on your gross salary of $22,000 you pay $1,800 in taxes, your net pay is $20,200.
How to calculate a yearly salary from a monthly salary
To calculate your yearly salary from monthly, simply multiply your monthly payment by 12.
For example, imagine you earn $5000 per month. To calculate your yearly salary, it would simply be:
$5,000 x 12 = $60,000
To calculate your monthly pay from your annual pay, simply divide your yearly pay by 12.
How to calculate a yearly salary from an hourly rate
To calculate your yearly salary from your hourly rate of pay, multiply the hourly rate by the number of hours worked in a week, then multiply that number by 52 weeks.
If you make $20 per hour, and work 40 hours a week, your equation would look like this:
($20 x 40) x 52 = $41,600
To calculate your hourly rate from your annual salary, divide your salary by 52, and then divide that by the number of hours worked each week.
To use our previous example, if you make $41,600 a year and work 40 hours each week, to calculate your hourly rate, you would:
($41,600 ÷ 52)÷40 = $20 per hour
Additional considerations for accurate calculations
While we’ve covered the basics, here are a few additional tips to help you in your calculations:
- Make sure you know your payroll schedule, which can impact your calculations. For example, if you get paid every two weeks, you can multiply that pay by 26 to get your yearly pay. If you’re paid weekly, you’d multiply by 52.
- Factor in any unpaid vacation and/or sick time in your calculations. For example, if you take three weeks of unpaid vacation time, you would use 49 as your number of weeks in your equations, not 52, because you were only paid for 49 of the weeks in that year.
If you’re having trouble reading your pay stub or calculating your pay, don’t be afraid to ask your human resources team for help. Staying on top of what you are paid is critical to financial planning and budgeting. The more you know, the better you can manage your money for the long term.