When I started my current job, I became aware of quite an interesting fact when looking at my pay-stub. One that I think may be the case for a lot of you who are also salaried employees on a bi-weekly pay schedule. You likely make a smaller salary than you think you do.
Look at your yearly salary figure quoted by your employer. Now, if you get paid bi-weekly, divide it by 26 (26 bi-weekly pay-periods in a year). Does the number match what your actual gross (amount before deductions) pay is?
When I did the math, I found out that this did not match at all for me; the gross was less! Luckily, I found this out over a weekend and had enough time away from work to crunch numbers and research how this could be.
According to the U.S. Office of Personnel Management, hourly and bi-weekly pay rates are calculated using 2087 work hours per year rather than 2080. If you work for a civilian employer, they may also use this figure. The reason for this is because over time, some work years have less than 2080 work hours and others have more. In the ’80s, an average was calculated of 2087 to account for these fluctuations.
Salary – $50,000/year
Estimated Bi-weekly Gross Pay – $50,000/26 pay periods = $1923.08/pay period
Hourly Rate – $50,000/2087hrs = $23.96
“Real” Biweekly Gross Pay – $23.96 x 80 hours = $1916.80
“Real” Salary – $1916.80 x 26 = $49,836.80
Salary – $100,000/year
Estimated Bi-weekly Gross Pay – $100,000/26 pay periods = $3846.15/pay period
Hourly Rate – $100,000/2087hrs = $47.92
“Real” Bi-weekly Gross Pay – $47.92 x 80 hours = $3833.60
“Real” Salary – $3833.60 x 26 = $99,673.60
When you do the math, you aren’t too far off from the salary listed in your job offer. However, you’re likely making your mental budget decisions on numbers that aren’t completely true unless you really look at your paycheck. I think many of us who get yearly raises don’t catch this because come tax season, our W-2 from the employer is showing us two different salaries’ worth of data.
I’m not sure how the calculations change for people paid weekly, monthly, or on the 1st and 15th, but it is worth taking a look at for everyone.