How salaried employees can increase their hourly rate
For most of my non-student adult life I’ve worked as a salaried employee. I’d given little thought to how my hourly rate varied based on the length of the pay period until I read Brandon Hanson’s recent article – Paid Twice a Month versus Every Two Weeks.
This hourly rate variance is especially significant when you are starting or leaving a job. In the article, Hansen explains mathematically how the payroll policy of the new or old employer can greatly affect the amount of those initial/final paychecks. He writes, “I’ve been exposed to two payroll systems: the once-every-two-weeks kind and the twice-a-month kind. Each has its own nuances and quirks, but only recently did I realize how they could impact my personal finances in dollars, not just monthly planning differences.”
When Hanson started a new job where he was paid twice a month instead of every two weeks, he was surprised by his first paycheck. “I had worked exactly two weeks, but I had been paid less than 1/26 of my salary. Why? Because I started in the midst of a long pay period.” Determined to figure out how the length of a pay period could impact an employee’s bottom line, Hanson did the math and found that you can receive a temporary raise of over 20% or a temporary pay cut of almost 10% for no other reason than when you start a new job or leave an old one.
Although it is probably impractical for most employees to time the start of a new job to take advantage of this temporary pay increase, Hanson uses the article to argue that employers should pay their employees an average hourly rate during their first or last pay period.
In the end, however, there are many more factors when determining what your time is worth as Mike Smith explained in an earlier article here on the Lending Club blog. Factors like your commute and jobs with long hours all play a role in how much you ultimately make per hour.