To figure out what you really earn per hour you first need to calculate how many hours you work in a year. If you work 8 to 5 with an hour off for lunch you will usually get paid for 40 hours a week which equates to 2,080 hours a year. Now add to that 2,080 the hour for lunch each day that you don’t get paid for unless you are actually able to accomplish personal chores during your lunch hour. Then add the hours spent driving to and from work. Next add the time spent working on “work stuff” at home, entertaining and supporting coworkers or attending work related parties or outings, the time spent shopping for supplies and so on. If it takes you an hour to get to work in the morning and an hour to get home after work, plus the hour that you are not paid for while you are at lunch that is 3 hours per day, 15 hours per week or approximately 750 hours per year taking into consideration a two week vacation. Your hours attributed to you job is now a minimum of 2,830 per year.
Next calculate how much you earn in a year, including your benefits (you should be able to get this off of your pay stub). From that, subtract taxes, the cost of commuting (gas and auto repair and maintenance), the cost of work clothes, the cost of day care, the cost of other supplies you need to purchase, and so on. Anything that you buy for your job, subtract it here.
Then divide the amount you actually earn by the number of hours that you really work.
EXAMPLE:
Your employer tells you that you will get paid $35.00 per hour based on 2,080 hours per year which means your annual salary would be $72,800.00. You employer will also match your 401(k) contribution up to 3% and you enroll in the 401(k) plan. Your employer also pays for your health insurance which is costing them $100.00 per month. Based on this your total compensation would be $76,184.00 annually. Your federal withholding taxes will be based on the $72,800 less the 3% that you are contributing to your 401(k) in this case we are going to assume the federal withholding is $7,000 annually.
Total Compensation $76,184.00
Less taxes: $14,753.20
FWT $ 7,000.00
FICA/Medi $ 5,569.20
Less 401(k) $ 2,184.00
Less expenses directly related to work[1]: $ 9,720.00
Lunches $ 2,500.00
Clothing $ 1,200.00
Automobile $ 1,020.00
Day Care $ 5,000.00
Less health insurance $ 1,200.00
Less Employer 401(k) contribution $ 2,184.00
Wages left over for living expenses: $44,942.80
Now if you take the $44,942.80 which is what you bring home after taxes and work related expenses and now you will need to divide it by the number of hours that are work related (2,830) your hourly rate of pay is only $15.88.
[1] The lunch expense is based on $10.00 per day. The clothing expense is based on $100.00 per month. The automobile expense is based on a 40 mile round trip at 51¢ per mile. The day care expense is based on $100.00 per week. All of these expenses are based on a 50 week year.
