Your contract says you earn a certain amount per hour, or a salary that works out to one. But work takes more of your life than the hours on the contract, and it costs you money to go. Your real hourly wage is what you earn for each hour work actually takes, after the costs of doing it. The idea comes from the personal-finance classic Your Money or Your Life, and it is one of the most useful numbers to know when comparing jobs.
Step 1: Start with your yearly pay
Use your salary before tax. If you are paid hourly, multiply your rate by your weekly hours and by 52. $28 an hour at 40 hours is $58,240 a year.
Step 2: Subtract what working costs you
Count only money you would not spend if you did not have this job:
- Getting there: transit fares, fuel, parking, tolls, extra wear on a car.
- Lunches and coffees bought because you are at work, minus what eating at home would cost.
- Work clothes, uniforms, dry cleaning.
- Childcare during your working hours.
- Professional fees, tools or software you pay for yourself.
Leave out anything you would pay anyway, like your phone plan or rent. Add up a typical month and multiply by 12.
Step 3: Add up every hour work takes
Start with your paid hours for the year (hours per week × 52). Then add:
- The commute, door to door, both ways: minutes per day × commute days per week × 52 ÷ 60.
- Unpaid work: emails in the evening, mandatory events, getting ready if it is only for work. Be honest but reasonable.
Step 4: Divide
Real hourly wage = (yearly pay − yearly work costs) ÷ total hours.
A worked example
| Amount | |
|---|---|
| Salary before tax | $70,000 |
| Work costs: $200 a month × 12 | − $2,400 |
| Pay left | $67,600 |
| Paid hours: 40 × 52 | 2,080 h |
| Commute: 45 min a day × 5 days × 52 ÷ 60 | + 195 h |
| Total hours | 2,275 h |
| Paper rate: $70,000 ÷ 2,080 | $33.65 / h |
| Real rate: $67,600 ÷ 2,275 | $29.71 / h |
The commute and the costs take about 12% off every hour. Nothing about the job changed; you just counted all of it.
Work out your own real hourly wageOpen calculator ›Why it matters when comparing jobs
Suppose a remote job offers $64,000, with $40 a month of costs and no commute. Its paper rate is lower, $30.77 an hour. Its real rate is ($64,000 − $480) ÷ 2,080 = $30.54, higher than the $29.71 of the office job paying $6,000 more. The real rate turns a salary comparison into a comparison of what each job pays for your time.
A quick check
If the commute is long, try the commute time calculator too: a 45-minute daily commute is 195 hours a year, almost five working weeks.
What this number is not
It is not a judgement of whether a job is worth it. Meaning, colleagues, growth and benefits do not fit in the formula. It is a way to see the time and money side clearly, so the rest of the decision can get the attention it deserves.
Questions people ask
What is a real hourly wage?
It is your pay divided by every hour work takes, including the commute and unpaid work, after subtracting money you spend only because you work. It is usually lower than the hourly rate on your contract.
Should I use pay before or after tax?
Either works if you are consistent. Before tax is simpler and compares directly with your paper rate. After tax shows what you actually keep for each hour.
Is this the same as the effective hourly rate freelancers talk about?
It is the same idea. Freelancers divide a project fee by all the hours it really took, including admin and revisions, to see what they actually earned per hour.
