One of the most common questions from professionals transitioning from salaried roles to contract or consulting positions is how hourly pay is calculated. In particular, they want to know how to translate their current or target annual salary into an hourly rate for a W‑2 contract assignment. The steps below provide a practical guide:

Divide your annual salary by 2080 (equivalent to working 40 hours a week for 52 weeks in a year) to arrive at the raw hourly rate {A}
Multiply your raw hourly rate {A} x number of desired vacation days + Paid Holidays x 8 (hours per day) {B}
Add in your annual health insurance premiums {C}
Add your annual salary + Vacation / Holiday Pay {B} + annual health insurance premiums {C} and divide by 2080 to arrive at your hourly rate inclusive of basic benefits
As an example, assuming an annual salary of $100,000, 3 weeks of vacation + 6 paid holidays, and $4800 in health insurance premiums, the hourly rate would be:
$100,000 / 2080 = $48.08{A}
$48.08 * 15 vacation days + 6 paid holidays * 8 hours/day = $8077.44 {B}
Salary $100,000 + Vacation & Holidays $8077.44 + Health Insurance $4800=$112,877.44
$112,877.44 / 2080 = $54.27 Contract / Consulting hourly rate

You may choose to factor in additional benefits, such as employer 401(k) contributions, when calculating compensation. However, it’s important to remember that the job market ultimately sets the prevailing rate for your skills. Setting realistic expectations requires researching job boards to understand what employers are currently paying. Beyond pay, contracting offers other advantages that should also be weighed as part of your overall decision.