How to Calculate Salary — Hourly, Annual & Overtime Guide
Introduction
Understanding how to calculate salary is a fundamental financial skill that empowers you to evaluate job offers, negotiate compensation, and build an accurate personal budget.
Why Salary Calculations Matter
- Job offer evaluation and comparison
- Compensation negotiation confidence
- Personal budgeting and financial planning
- Career decision making with accurate data
- Overtime planning and income optimization
Common Salary Calculation Challenges
- Comparing hourly vs annual rates
- Factoring in overtime and bonuses
- Converting between pay frequencies (weekly, monthly)
- Understanding total compensation packages
- Avoiding calculation errors that cost money
What You'll Master
This comprehensive guide covers:
- Core formulas for salary conversion
- Hourly to annual and reverse calculations
- Overtime impact and bonus integration
- Pay frequency conversions (weekly, bi-weekly, monthly)
- Total compensation analysis strategies
Whether you're comparing roles or negotiating pay, precise calculations prevent costly misunderstandings and help you make informed career and financial decisions.
The Core Salary Calculations: From Hourly to Annual
All salary conversions start with a few key inputs and standardised assumptions about working hours.
1. Hourly to Annual Salary
This is the most common conversion, used to compare part-time or contract roles with full-time positions.
Formula:
Annual Salary = Hourly Wage × Hours per Week × Weeks per Year
Standard Assumptions:
- Full-time: 37.5–40 hours/week (UK average is 36.6 hrs, but 37.5 is common for salaried roles)
- Weeks per year: 52 (includes paid holiday)
Example: £18/hour, 37.5 hrs/week:
18 × 37.5 × 52 = **£35,100/year**
💡 Pro Tip: If you take unpaid leave, reduce weeks accordingly (e.g., 50 weeks for 2 weeks unpaid).
2. Annual Salary to Other Pay Periods
Once you have the annual figure, breaking it down is straightforward—but pay frequency matters.
| Pay Frequency | Calculation | Example (£35,100/year) | |--------------|------------|------------------------| | Monthly | Annual ÷ 12 | £2,925 | | Bi-weekly | Annual ÷ 26 | £1,350 | | Weekly | Annual ÷ 52 | £675 |
⚠️ Key Distinction:
- Bi-weekly = every 2 weeks (26 pays/year)
- Semi-monthly = twice a month (24 pays/year → £1,462.50)
3. Overtime Calculations
In the UK, overtime is typically paid at 1.5× the hourly rate for hours beyond the contracted week.
Formula:
Overtime Pay = Overtime Hours × Hourly Rate × 1.5
Total Weekly Pay = (Regular Hours × Rate) + Overtime Pay
Example: Contracted 37.5 hrs at £20/hr, work 45 hrs:
- Regular:
37.5 × 20 = £750 - Overtime:
(45 – 37.5) × 20 × 1.5 = 7.5 × 30 = £225 - Total: £975/week
4. Total Compensation: Beyond Base Pay
Your true earnings include:
- Bonuses (annual, performance-based)
- Commission (sales roles)
- Benefits (pension contributions, health insurance)
- Paid Time Off (holiday, sick leave)
📌 Rule of Thumb: A 5% employer pension contribution adds £1,755 to a £35,100 salary.
Pro Tips & Common Mistakes
- Clarify pay frequency: A £2,500 semi-monthly paycheck ≠ £2,500 bi-weekly.
- Budget on net pay: Use a Tax Calculator to estimate take-home pay after income tax, National Insurance, and pension deductions.
- Calculate effective hourly rate:
Annual Salary ÷ (Hours/Week × Weeks/Year)
Helps compare salaried vs. hourly roles. - Model scenarios: See how a £2,000 raise or 5 hrs/week overtime impacts your annual income.
- Consider non-monetary value: Remote work, flexible hours, and job security are part of total compensation.
Practical Applications
- Compare job offers with different pay structures
- Negotiate a counteroffer with data
- Plan for a side hustle or freelance work
- Build a budget based on accurate income projections
- Understand payslips and tax codes
Worked Examples & Practice Problems
1. Basic Conversion
- Hourly: £15/hr, 40 hrs/week → Annual =
15 × 40 × 52 = **£31,200** - Annual: £42,000 → Hourly =
42000 ÷ (37.5 × 52) ≈ **£21.54/hr**
2. Overtime Impact
- Base: £22/hr, 37.5 hrs/week
- Overtime: 8 hrs/week at 1.5×
- Annual =
(22×37.5×52) + (8×33×52) = £42,900 + £13,728 = **£56,628**
3. Total Compensation
- Base salary: £38,000
- Bonus: £3,000
- Employer pension: 5% (£1,900)
- Total: £42,900
4. Pay Frequency Comparison
- Job A: £2,800/month (12 pays) → £33,600/year
- Job B: £1,350 bi-weekly (26 pays) → £35,100/year
→ Job B pays £1,500 more annually
Practice Challenge
You’re offered:
- Option 1: £28,000/year, paid monthly
- Option 2: £14.50/hour, 35 hrs/week
Calculate:
- Annual salary for Option 2
- Monthly take-home for both (assume 20% net after tax)
- Which is better financially?
How do I convert annual salary to hourly rate in the UK?
Divide your annual salary by your total working hours per year. For a standard 37.5-hour week:
Hourly Rate = Annual Salary ÷ (37.5 × 52) = Annual Salary ÷ 1,950
Example: £39,000 ÷ 1,950 = £20/hour
What’s the difference between bi-weekly and semi-monthly pay?
- Bi-weekly: Paid every 2 weeks → 26 pays/year
- Semi-monthly: Paid twice a month (e.g., 1st and 15th) → 24 pays/year
A semi-monthly paycheck is larger, but you receive 2 fewer per year.
How is overtime calculated in the UK?
While UK law doesn’t mandate overtime pay, most employers pay time-and-a-half (1.5×) for hours beyond the contracted week. Always check your employment contract.
Should I include bonuses in my salary calculation?
For job comparisons, yes—include typical bonuses to assess total compensation. For budgeting, be conservative—exclude bonuses or use a 3-year average.
How do taxes affect my take-home pay?
UK income tax and National Insurance reduce your gross pay. On a £35,000 salary:
- Income Tax: £3,480 (after £12,570 personal allowance)
- NI: £2,452 (12% on £35,000 – £12,570)
- Net Pay: ~£29,068/year (£2,422/month)
What is a good salary in the UK?
It depends on location and role. As of 2025:
- National average: ~£34,000
- London average: ~£45,000
- Living wage: £12.00/hr (£24,960 full-time)
Can I calculate my salary with irregular hours?
Yes—track your hours over 3 months, calculate average weekly hours, then apply the hourly-to-annual formula.
How do I factor in pension contributions?
- Employee contributions reduce your net pay
- Employer contributions are part of your total compensation
Always include both when comparing job offers.
Related Calculators
- Tax Calculator – Estimate UK income tax and NI
- Budget Calculator – Plan monthly spending
Conclusion
Understanding how to calculate salary in all its forms—from gross to net, hourly to annual, and including benefits—is essential for effective career planning and financial management. These calculations help you evaluate job offers accurately, negotiate compensation effectively, and create realistic budgets based on your actual take-home pay. Knowing your true compensation value enables informed decisions about career moves and financial goals.
Accurate salary calculations eliminate surprises and help you plan for taxes, benefits, and other deductions. Whether you're comparing offers, planning a career change, or simply understanding your payslip, these tools provide clarity about your financial position. Calculate your true salary value with our Salary Calculator to understand your total compensation and make informed career decisions.