The Simple Formula — and Why It's Often Wrong
The basic conversion: Hourly Rate × 2,080 (52 weeks × 40 hours) = Annual Salary Equivalent. At $50/hour, that's $104,000/year. Simple. But misleading.
The correct calculation depends on your situation. Use the Hourly To Salary Calculator to account for the factors that the simple formula ignores.
Why the Simple Formula Fails
Factor 1: Actual Working Hours
2,080 hours assumes 52 weeks × 40 hours with zero time off. In reality:
– 10 federal holidays = 80 hours
– 10 vacation days = 80 hours
– 5 sick days = 40 hours
= 1,880 actual working hours/year
At $50/hour actual, annual salary equivalent = $94,000 — not $104,000.
Factor 2: Benefits Value (Employee vs Contractor)
A W-2 employee's $100,000 salary includes employer-paid benefits worth $15,000–$30,000 (health insurance, 401k matching, payroll tax employer side). A contractor earning $100,000 must purchase all of these independently. The true contractor-to-employee equivalent rate requires a premium of 30–50% to maintain equivalent compensation.
Factor 3: Self-Employment Tax (For Contractors)
Freelancers and contractors pay both employer (7.65%) and employee (7.65%) Social Security/Medicare taxes = 15.3% total SE tax. A W-2 employee only pays the employee half. This reduces contractor take-home by an additional 7.65% vs equivalent salary.
Rate Conversion Reference Table
Annual salary equivalents based on 1,880 actual hours/year:
- $25/hour = $47,000/year
- $50/hour = $94,000/year
- $75/hour = $141,000/year
- $100/hour = $188,000/year
- $150/hour = $282,000/year
- $200/hour = $376,000/year
For contractors, add 30–45% to account for self-employment tax and benefits. Use the Hourly To Salary Calculator for a precise calculation based on your specific variables. Then compare your contractor rate against the minimum floor from the Freelance Rate Calculator.