Neither arrangement is universally better — but they're not equal either. The right answer depends on the hours you actually work, the benefits included, and whether overtime is part of the picture.
Converting hourly to annual salary
The standard calculation: hourly rate × 40 hours/week × 52 weeks = annual equivalent. A $30/hour rate equals $62,400/year. But salaried employees often work more than 40 hours without additional compensation — if a '$62,400 salary' requires 50 hours/week, the effective rate is closer to $24/hour.
The overtime advantage of hourly work
Non-exempt hourly employees are entitled to overtime pay (1.5× base rate) for hours worked beyond 40 per week under the FLSA. Salaried exempt employees receive no extra compensation for extra hours. If you regularly work overtime, hourly can be substantially more lucrative: 10 hours of OT/week at 1.5× on a $30 base adds over $23,000/year to your earnings.
Benefits: the salaried advantage
Salaried roles typically include: paid sick leave, consistent pay during slow periods, health insurance contributions, retirement matching, and career progression structure. Hourly workers in contract or gig roles often receive none of these — which means you should add 20–30% to a comparable salary to account for what you'd need to self-fund.
Taxes are the same either way
The IRS treats hourly wages and salary identically for income tax purposes — both go through the same brackets and payroll tax rules. Freelance hourly work (1099) is different — you pay self-employment tax on top of income tax.
Frequently Asked Questions
What hourly rate is equivalent to a $75,000 salary?
The standard formula: annual salary ÷ 2,080 working hours = equivalent hourly rate. $75,000 ÷ 2,080 = $36.06/hour. As a contractor or freelancer, you need to add 20–30% on top to self-fund benefits (health insurance, retirement, sick leave, taxes), so a comparable contracting rate is roughly $43–47/hour before accounting for your own SE tax.
Do freelance or contract workers pay more in taxes?
Yes. Self-employed workers on 1099 income pay self-employment tax at 15.3% on net income (up to the Social Security wage base), in addition to regular income tax. Employees only pay the employee half (7.65%) — their employer covers the other 7.65%. This meaningful extra tax burden should always be factored into hourly vs. salary comparisons for contract roles.
Which arrangement is better for building long-term savings?
Salaried roles with employer 401(k) matching and health benefits often add $10,000–20,000 per year in total compensation beyond the stated salary. Hourly contract work may pay a higher headline rate but requires you to fund all those costs yourself. Run a full total-compensation comparison, not just the headline hourly or annual number, before making a decision.
Convert your rate accurately
Use our Hourly to Salary Calculator to convert any hourly rate to all equivalent pay periods (annual, monthly, bi-weekly, weekly, daily) including overtime scenarios.