What's the difference between hourly rate and effective hourly rate?

Hourly rate is salary divided by 40 hrs × 52 weeks = 2,080 hrs. Effective (or true) hourly rate subtracts paid time off, sick days, and holidays from the denominator — so you get a realistic number for hours actually worked.

Should I include my benefits in the calculation?

You can, but most people calculate a base hourly rate first. If you want total compensation per hour, add the dollar value of employer-paid benefits (health insurance, 401(k) match) to the annual salary before dividing.

How does this compare to a freelance or contract rate?

Contract and freelance rates are typically 1.5-2.5x the equivalent W-2 rate because contractors pay self-employment tax, buy their own benefits, and absorb non-billable overhead. Use the freelance rate calculator for a proper apples-to-apples comparison.

What hourly rate do I need to match a $100k salary?

At 40 hrs/wk × 52 weeks, $100k = about $48/hr gross. But after 2 weeks PTO + 10 holidays it's closer to $55/hr effective, and as a 1099 contractor you'd need ~$70-$85/hr to net the same after taxes and benefits.

Money & Finance · Free tool

Hourly Rate Calculator

Convert an annual salary to a real hourly rate including overhead, taxes, and non-billable hours. A free instant tool for employees and freelancers.

Updated June 2026

Desired annual income ($)Hours per weekWeeks worked per yearOverhead costs (%)Target profit margin (%)

Base hourly rate

$44.27

Billable hourly rate

$61.09

Per 15 min

$15.27

Per 30 min

$30.55

Per hour

$61.09

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What it does

Convert an annual salary into a real hourly rate, adjusting for unpaid time, holidays, sick days, and non-billable hours. Or go the other way: type an hourly rate and see what it implies as an annual income at various weekly workloads.

For freelancers specifically use freelance rate calculator. Related: paycheck calculator, overtime calculator. See how to price freelance work.

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Example input & output

Input

Annual: $50,000
2 weeks PTO + 10 federal holidays
40 hrs/wk typical

Output

True hourly: $20.53
Posted rate implication: $24.04
(PTO/holidays cut your real rate by ~15%)

The posted rate (salary ÷ 52 ÷ 40) overstates what you earn per hour actually worked.

How to use it

Enter annual salary (or hourly rate).
Set holidays, sick days, and typical weekly hours.
Adjust for unpaid overhead — admin, sales, learning.
Read the true hourly rate and annual equivalents.

When to use this tool

Comparing a salaried job offer against a contract role.
Deciding whether to accept overtime vs extra PTO.
Checking what your real hourly rate is after paid time off shrinks.
Justifying a raise based on your effective rate vs the posted band.

When not to use it

Freelancers pricing client work — use the freelance rate calculator instead (it factors in business costs and taxes).
Computing actual take-home pay — use the paycheck calculator for federal/state withholding math.

Frequently asked questions

What's the difference between hourly rate and effective hourly rate?: Hourly rate is salary divided by 40 hrs × 52 weeks = 2,080 hrs. Effective (or true) hourly rate subtracts paid time off, sick days, and holidays from the denominator — so you get a realistic number for hours actually worked.
Should I include my benefits in the calculation?: You can, but most people calculate a base hourly rate first. If you want total compensation per hour, add the dollar value of employer-paid benefits (health insurance, 401(k) match) to the annual salary before dividing.
How does this compare to a freelance or contract rate?: Contract and freelance rates are typically 1.5-2.5x the equivalent W-2 rate because contractors pay self-employment tax, buy their own benefits, and absorb non-billable overhead. Use the freelance rate calculator for a proper apples-to-apples comparison.
What hourly rate do I need to match a $100k salary?: At 40 hrs/wk × 52 weeks, $100k = about $48/hr gross. But after 2 weeks PTO + 10 holidays it's closer to $55/hr effective, and as a 1099 contractor you'd need ~$70-$85/hr to net the same after taxes and benefits.

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