Understanding hourly vs salary pay conversion | Employment | Financial Literacy | Khan Academy

- [Instructor] Let's say that
you just got two job offers,

and these jobs are pretty
identical to each other,

except for how they gave you the offer.

So the first job, they tell
you that it is $30 an hour,

and they're going to
expect you to be there

40 hours per week.

Then the second job, they're
offering you $60,000,

$60,000 per year,

and they're also assuming

that you're going to be
there 40 hours a week.

Which one is giving you better pay?

Pause this video and see
if you can figure this out.

What's better?

$30 an hour or $60,000 a year?

Alright, now let's work
through this together.

Now, one way that many
people will often do this,

and you might have just
tried to do it this way,

but I'll tell you in a
second, is a mistake,

is to say, okay, I'm going
to take my $30 per hour,

multiply that times 40 hours per week,

multiply that times four weeks in a month,

and then multiply that
times 12 months in a year.

Before I tell you why this is incorrect,

let's actually calculate
what we get by doing that.

If we take 30 times 40,
that's going to be 1200,

times four weeks is going to be 4,800.

And then if we want to
multiply 4,800 times 12,

at the risk of me making
a simple math error

while y'all are watching,
I will just do that here.

4,800 times 12

is equal to 57,600.

Let me just confirm my math.

So I took 30 times, lemme do it down here

so you can see what I'm,
times 40 hours in a week,

times four weeks, times
12 months in a year.

I got $57,600.

$57,600.

So if you just did that
calculation, you might just say,

oh wow, this job right
over here is better.

$60,000 a year versus 57,600.

But I just told you there is a mistake.

Can you spot the mistake?

Well, if you think about
what just happened,

you didn't realize that most months

actually have more than
four weeks in them.

There's actually 52 weeks in a year,

and the way we just calculated,

we assumed there's 48 weeks in a year.

So the correct way to do this

would actually be to
take your $30 an hour,

multiply it times 40 hours in a week,

and then to get to the year,

multiply that times 52 weeks in a year.

And if we do that, we're going
to get a different number.

So now, lemme do it up here.

$30 an hour times 40 hours in a week

times 52 weeks in a year

gets us to $62,400.

$62,400, which gives us
a very different number.

This is almost $5,000 higher
than our previous number.

And now all of a sudden it looks

like the $30 an hour job is better.

So the big takeaway from this video

is if you're trying to convert
between hourly and annual,

remember, don't just go for estimate

how many weeks are in a month

and then multiply you
by 12 months in a year.

Or if you're going the other
way, divide by 12 months

and then divide by four weeks.

Think about multiplying
by 52 weeks in a year.

Or if you're going from annual to hourly,

think about dividing
by 52 weeks in a year.

Now I know what some of y'all are saying.

Well this might be roughly right.

This $30 an hour looks better

if I just take it all together like that.

But maybe this job right
over here that isn't hourly

is more salaried,

and maybe they're going to
give me other vacations.

I'm going to get national holidays.

I can take sick leave.

And that might indeed be the case.

So what I just showed you

is a very superficial quick calculation,

which I wanna make sure that
you're going to do correctly,

but you also have to think
about other differences

that might exist in the job.

This job, for example,
because of the vacations,

might not actually make you work

as many weeks as the calculation implies.