May 10, 2009

Figure your After Tax Hourly Wage

A while ago one of my friends was working very long hours. He had pretty good pay and was making something around $90,000 but he was required to work about 60 hours a week and he was on call a lot. We'd go out to dinner and his pager would bleep away and he'd be typing out responses. When he was on call he'd probably a few pages an evening. Some days he'd be on call 24 hours so he might be required to get out of bed at 2AM to go plug in his computer and dial in to do some remote work from home. Don't get me wrong $90,000 is a lot of money so its hard to complain too much. But by comparison to my friend: I work for the same company, I have less education, I have less responsibility and stress, I work 40 hours a week give or take and I am never on call yet I make just as much money as he does. Clearly my friend's job wasn't compensating him well for all the work he did. Its important to compare the hours worked and the salary to see the the hourly rate for a job and not just look at the total salary.

Lets just estimate that he and I both make $90,000. Its not exact but close enough for discussion. He worked 60 hours and I worked 40 hours. On an hourly basis he made about $30/hour and I made about $45/hr. Our gross income was the same but on an hourly basis I was making 50% more than he was. Thankfully my friend has since moved to a better position at work and now he works a lot closer to a regular 40 hour /week job.

Lets look at another example. Say two recent college graduates are pursuing different careers. One has just finished a math degree and is going to start as a teacher. They are making $35,000 a year. The other person has an engineering degree and their starting pay is $55,000. The teacher works 8 hour shifts for 189 days a year or 1,512 hours a year. The engineer works 8 hour shifts 240 days for 1,920 hours / year. On an hourly basis the teacher is making $23.15 /hr and the engineer is pulling in $28.65/hr. Clearly the engineer is doing better. But lets look at the situation if the engineer works 50 hour weeks rather than 40 hour weeks. That would result in a total of 2,400 hours a year and their $55,000 salary would give them an hourly rate of $22.92 /hr. In this situation the engineer is making less per hour than the teacher.

Teacher Engr at 40hr Engr at 50hr
Salary $35,000 $55,000 $55,000
Hours worked 1,512 1,920 2,400
Hourly rate $23.15 $28.65 $22.92

Of course its also possible that the teacher could be working 10 hour days and the engineer might work 8 hour days. There is also an advantage to having a higher gross salary as it will provide a higher standard of living. But does a higher overall pay come at the expense of high stress and burning yourself out spending most of your days at work?

Next time you're looking at a job make sure to figure out how the hourly pay would look.

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