The Effective Hourly Rate of a Salaried Job: Paid Time Off, Unpaid Overtime, and Commute
October 29, 2026
Salary divided by 2,080 (52 weeks × 40 hours) is the standard hourly equivalent. For $65,000, that is $31.25. It is the pay per paid hour, including vacation and holidays. But what you earn for the time you actually work, and spend on work-related activities, can look very different.
Start by counting the hours you actually work. If you get 10 paid holidays (80 hours) and 15 days of paid time off (120 hours), then you work 2,080 − 200 = 1,880 hours. The effective rate is $65,000 ÷ 1,880 = $34.57 per hour worked. Paid time off raises the rate on worked hours.
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Suppose you work 5 hours a week of unpaid overtime during the 47 working weeks (1,880 ÷ 40): 235 extra hours, for a total of 2,115 hours. The rate falls to $65,000 ÷ 2,115 = $30.73. If you commute 1 hour a day (round trip) on 235 working days (1,880 ÷ 8), that adds 235 hours of time devoted to the job, and the rate becomes $65,000 ÷ 2,350 = $27.66. Costs of commuting (fuel, parking, transit) reduce the net income as well: at $15 a day, 235 days cost $3,525, reducing the net pay to $61,475, or $26.16 per hour. Compare jobs on all these terms.
| Basis | Hours per year | Effective hourly rate |
|---|---|---|
| Paid hours (2,080) | 2,080 | $31.25 |
| Hours worked (minus 200 h time off) | 1,880 | $34.57 |
| Plus 5 h/week unpaid overtime | 2,115 | $30.73 |
| Plus 1 h/day commute | 2,350 | $27.66 |
| Also net of $3,525 commute costs | 2,350 | $26.16 |
Comparing Job Offers
Job A pays $65,000 for 40 hours with a 15-minute commute and 20 vacation days. Job B pays $72,000 but demands 50-hour weeks and a 1-hour commute with 10 vacation days. Job B: hours = (52 weeks − (10 holidays + 10 vacation days = 4 weeks)) × 50 = 48 × 50 = 2,400 work hours plus 240 days × 1 hour commute = 2,640 hours: $72,000 ÷ 2,640 = $27.27 per hour. Job A: 2,080 − 240 h = 1,840 h worked plus 240 × 0.5 h = 120 h commute: 1,960 h, giving $33.16 per hour. The 'higher-paying' job pays 18% less per hour of life devoted to work.
Using the Number
The effective rate helps in negotiating (an extra week off is worth about 2% of salary), deciding about side projects (are they better than your job's marginal rate?), and valuing remote work. Benefits such as health insurance, retirement matches, and bonuses should be added to the numerator. Non-monetary factors such as meaning, growth, and flexibility matter too. For exempt employees, overtime isn't paid, so the effective rate falls as hours rise.
Frequently Asked Questions
How do I convert a salary to an hourly rate?
Divide by 2,080 for the standard hourly equivalent.
How does paid time off change the hourly rate?
It reduces the hours worked and raises the pay per hour worked.
Why include commuting?
It's time devoted to the job and adds out-of-pocket costs.
How much is an extra week of vacation worth?
About 2% of annual salary.
Should benefits be included?
Yes, add their value to compensation.