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How To Calculate Hourly Rate Of Work (Step by Step Explained)

October 10, 2019 By Hitesh Bhasin Filed Under: Human Resources

Services are a saleable commodity, and you need to be aware of the hourly rate of work, whether you are an employee or an employer. Even if you are an employer, you need to be alert because you will have to make payments accordingly.

In the current scenario, both employers and employees prefer an hourly mode of work instead of monthly, annual, weekly, or daily salary as it is profitable to work on an hourly basis.

It is important to calculate all the options you receive before saying yes to a particular rate of work. Yes, the computation might seem overwhelming at first but remember it will prove a blessing in the long run. With a clear concept, you will be able to make viable decisions in your favour.

Table of Contents

  • Understanding the hourly rate of work
  • What is the hourly rate of work?
  • How to calculate the hourly rate of work
  • Which one is better – salary or hourly work?
  • Conclusion

Understanding the hourly rate of work

Understanding how to calculate the hourly rate of work is imperative as it helps to analyze the financial needs of a business entity.

The calculations are based on several factors that need to be scrutinized thoroughly. Information, facts, figures, and even assumptions, along with the financial situation, help in making viable calculations that would prove beneficial for the company.

Remember, some laws describe minimum wages for minimum hours, and an employer cannot pay less than it.

Determining and calculating the hourly rate of work is a challenge because you might be in danger of charging either too little or too high, and both scenarios are a recipe for disaster. It can hurt your prospects hence be diligent in your efforts.

Calculate the hourly rate of work after determining several factors like several hours, several workdays, how much you want to earn, rates in the market, and will it be able to cover your expenses.

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What is the hourly rate of work?

How To Calculate Hourly Rate Of Work - 2

The amount that is earned paid, or charged on an hourly basis at a definite rate is known as the hourly rate of work.

This pay is generally fixed for a stipulated period. In several countries, people prefer to work on an hourly basis as this option gives them a lot of leeway in terms of flexibility and work choice.

Individuals are no longer interested in the nine-to-five fixed-job, and the changing times have opened new doors of opportunity for the emerging generation. The hourly rate of work is suited to their new way of thinking that demands certain freedom in choosing the work hours.

Moreover, the employers are also encouraging this mode of work because they feel that the employees will be giving their best when the hours are billable, and they will be accounted for it.

How to calculate the hourly rate of work

How To Calculate Hourly Rate Of Work - 3

How much should an employer pay for the services and how much should an employee charge is a critical question that needs deliberation?

Although there are several modes of paying for the services rendered like sales commission, the fee for an entire project, salary basis, etc. but the most popular is, of course, hourly rates.

If you are just starting and want to know what to charge on an hourly basis, then first calculate the rates based on your expenses and next research so that you can get an estimated rate.

Now adjust your hourly rates as per your directive. According to business schools, there is a standard formula for calculating the hourly rate of work. You first need to get a total of your overhead and labour costs and then add the profit you are expecting.

Divide the total figure by the number of hours you have worked. This should be the minimum rate you can charge for an hourly rate if you want to pay your expenses and earn profit along with it.

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Better evaluate market conditions because it also is a great determining factor while calculating salary. Suppose according to your estimates your hourly rate of work should be Rs 400, but people are being paid Rs 500 for the same type of work.

If you agree to a reduced sum, you are jeopardizing your chances for the future. If the case is opposite for instance the market rate for the same type of job is Rs 300 even, then you will have to make viable changes because until and unless you are giving some extra service no one is going to hire you at high rates.

If you are self-employed, then opt for the following procedure to calculate the hourly rate of work. You should first keep track of the number of hours you have worked and then of your paycheck. It is up to you whether you want to include taxes while calculating the hourly rate.

Remember if you do not add it, then your hourly estimate rate will be higher. Simply divide your income by the number of hours you have worked. The simplest formula for this is

Hourly Rate = Income / Hours

For example, if your weekly income is Rs 10000 and you are working 8-hours per week for five days then your

Hourly Rate = Income / Hours

Hourly rate = 10000/8*5

Hourly Rate = Rs 250

Thus the hourly rate, in this case, is Rs 250.

If you are looking for ways to calculate the hourly rate of work, then let me explain this from the viewpoint of an employee with a salary.

Remember, an employee is liable to several benefits from his firm. When you are adding up your total salary, add the additional incomes to your yearly paycheck.

It can include incentives, rewards, bonus, tips, and monetary compensation. When you are calculating the overtime hours, then multiply it by the rate you were paid. Add the amount to your salary and the hours to the number of hours you have worked.

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In case you have taken time off for holidays and leave then deduct the number of hours from the hours you are supposed to work. Now use the formula mentioned above and calculate your hourly rate.

Which one is better – salary or hourly work?

How To Calculate Hourly Rate Of Work - 4

  • A salaried employee gets a fixed salary as his wages irrespective of the number of hours he works. Sometimes he has to work much longer than normal hours and even then is not paid extra for his efforts. An employee who is working on an hourly basis gets paid an extra amount if he has to work overtime because his hours are accountable.
  • Salaried employees have a consistent paycheck, whereas individuals who work on an hourly basis have a very inconsistent pay. Sometimes it works in their favour and sometimes not.
  • If you are on a salary basis, then you are accorded privileges like paid vacation, retirement contributions, medical benefits, and so-on which is not given to people working on an hourly
  • An hourly mode of payment is best for someone who wants to leave work at fixed times after completing his quota of hours. A salaried employee cannot say no to any extra work that suddenly comes along his way even if it is after his normal leaving time.

Conclusion

Several big organizations are giving greater importance to the hourly rate of work as the management feel that employees tend to be more efficient when their hours are billable. The result is great work of high value.

Likewise, organizations can hire people who are trained for specialized work without undergoing the hassle of salary and related benefits. This is a saving grace for the company as it does not have to pay the additional benefits that it would have if the employee was a salaried one.

Both the employers and employees are generally happy with this arrangement as it increases the productivity of that company because of real value and high-quality work done by the worker on an hourly basis.

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Liked this post? Check out these detailed articles on Topic of Human Resources

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About Hitesh Bhasin

Hi, I am an MBA and the CEO of Marketing91. I am a Digital Marketer and an Entrepreneur with 12 Years of experience in Business and Marketing. Business is my passion and i have established myself in multiple industries with a focus on sustainable growth. You will generally find me online at the Marketing91 Academy.

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