What are you really getting paid ???

This Article is written with a focus primarily on someone who is earning an annual salary, not necessarily for someone who is paid hourly who can also earn overtime pay. We'll be discussing what really happens to your earnings when someone in a Salaried-Exempt role starts working more than 40 hours in a week on a regular basis.

The word Compensation is defined as - the total cash and non-cash payments that you give to an employee in exchange for the work they do for your business.

So if you ask someone what they're being compensated for their current job, most Candidates will give you an answer that focuses primarily on the salary they're receiving and won't necessarily include their benefits and such in their answer.

This is assuming they don't tell you -- it's none of your business...

For the sake of this Article, we'll just assume they have a friendlier demeanor and are happy to discuss it.

If you answer this for yourself, you may be surprised by what you learn once we work through some details you may not have considered before reading this Article. For some of you, this may be a shock to your system and that just can't be helped. Sometimes the truth hurts when we first learn of it and then it empowers us to make better decisions moving forward. (no pain, no gain comes to mind for some reason...)

So the typical answer to the question "what are you being paid" is going to be - "my annual Salary is X".

Since we don't want to over complicate this exercise we won't include any sort of detailed analysis of the value of your benefits package, potential 401K contributions, incentive pay potential, bonus potential, etc. For this exercise we'll just stick with Annual Salary for the time being since that is what you typically count on going into your bank account (minus the appropriate taxes of course).

Most salaried staff members are being paid using a Salaried-Exempt pay model. Which is one that has an annualized earnings total, and is exempt from paying you for any additional work (overtime) you may do in a given year. There's a reason why positions are classified this way and overtime is universally understood as hours over 40 in a given week.

Since most Companies do continue to pay you even when you're not working, ie. Holidays, Vacation Days, Sick Days, potentially Personal Days, your annual compensation does cover all the days you are at work, along with the days you are allowed not to be there (hence the term - paid time off or PTO). So the total time you are compensated for is generally -- 40 hours a week for 52 weeks in a year, which adds up to a total of 2,080 work hours in a year. This is an important number to remember.

For the sake of this exercise we do need to agree that a standard work week is based on 40 hours in a given week and we'll leave out of this discussion any unusual or emergency situations that require going above and beyond that, we'll treat those as periodic circumstances, not every day/every week expectations.

So, with a standard 40 hour work week in mind, an exercise I've routinely taken Candidates through when comparing their current job situation to a new one, is to have them take their Annual Salary and divide it by 2,080 Work Hours (40 hours a week for 52 weeks in a year).

The resultant number is the hourly pay equivalent of their salary, ie. what am I being paid per hour by my Employer to be doing work for them in this role for a typical 40 hour work week.

For example, someone with a $100,000 salary is being paid approximately $49.07 per hour ($100,000 / 2,080 hours).

That's the compensation your Employer is giving you for the time you invest in working for them. Pretty straight forward, for every hour of my life that I spend doing tasks for my Employer, they are compensating me so much money per hour to do so.

Nothing earth shattering there, but what we'll discuss next is where things start to get a little interesting...

If you then keep track of the actual amount of time you spend at work each week, where you document for yourself an honest accounting of all the extra time you are investing in your work, the resultant pay per hour starts to change...

So, if you re-do the math we used earlier taking your Annual Salary and now dividing it by the "actual hours" your worked ... wah-lah ... you'll then see your hourly pay equivalent is most likely starting to drop like a stone since you are basically donating additional hours of work to your Employer. As the additional amount of time you spend at work continues to increase, the impact is even more dramatic.

Since there are just 24 hours in a day, it seems reasonable to think about it this way -- you have 8 hours for work, 8 hours for Home Life/Family, and 8 hours to sleep.

It also seems pretty reasonable (to me anyways) to admit that if you add hours to one of those 3 categories in any given day, you will have to remove some hours from the other two. So, if you decide to stay at work 10 hours a day, you will then have to remove 2 hours a day from either your Family time and/or your Sleep time. Most people would agree with this. Also, if you do some work on the weekend, when you're not supposed to really be working at all, you still have to then remove those hours from either Home Life/Family or your Sleep.

Time is not unlike currency, we all only have so much of it we can spend. Those extra hours at work are hours you can no longer use for other things like -- a side hustle, or continuing education, or recreating, or volunteering, or enjoying time with Family/Friends or just Sleeping for that matter.

So, if you are earning $100,000 salary and lets say you have averaged 50 hours a week at your work. Which I'm sad to say many of the Candidates I've worked with over the years, when they started paying attention to this, found they were averaging 50+ hours a week on pretty regular basis.

So back to the math, you then divide the $100,000 salary by 2,600 hours of work, and now your hourly pay equivalent is reduced down to $38.46 per hour, which means you have in effect given yourself a 21.62% per hour pay cut, by working all those free hours...

Great for your Employer, they're receiving free work and they don't have to hire someone else to do that additional work, not necessarily so great for the individual from multiple perspectives.

(It's completely OK to have a stunned or confused look on your face right now as you ponder this and potentially re-run the numbers just to make sure you got it right...)

I can already hear the rationalizations getting formed to excuse this, ie. everyone just does this, you can't get promoted if you don't do this, nobody really works only 40 hours a week, or ... I really love what I do so I don't really mind this ...

All those excuses or rationalizations aside, the math itself is undeniable, and believe me I've had lots and lots of folks try to justify why this is actually OK over the years.

You see, if it isn't OK, then you should feel compelled to do something about it, rather than just live with it.

The most logical thing to do is to just stop over-working yourself and give your Employer 40 hours of diligent effort for 40 hours of pay. Basically, you should give yourself back the hours in your day that actually do belong to -- just you... Think about it for a moment. Please.

Trust me, I know how hard it is to scale back when you're a known commodity and you've created a reputation for yourself by out-working your peers, but you're doing so at a very real cost to yourself and your family. The math just lets you put a dollar value to all that extra effort, which you are basically donating to your Employer...

The thing is -- you may have dug a pretty big hole for yourself by now, depending on where you're at in your career, where working way past 40 hours in a given week is now somehow actually expected of you. So the desire to rationalize away why this is OK can get really, really strong here.

Something you may want to consider is -- bad habits (working too much is actually a bad habit, by the way) are hard to break, just as new good habits take a lot of effort to build, it's basic human nature. Working for someone else and not being compensated directly for that time has actually lead many Candidates into doing hourly contracting. Which requires the Employer to pay you for every single hour of work that is being done. It's amazing how much better projects get managed when someone does actually have to pay for all the work being done.

In the end, the hourly pay equivalent really does help you compare your actual compensation to an equivalent position at another Employer where 40 hours a week is all that is expected of an employee.

You just saw for yourself an example where a $100,000 salary at an Employer where the expectation is for only 40 hours of work in a given week is certainly a much better deal than a $100,000 salary where someone ends up working 50 hours a week. The math produces even more dramatic results for those who average higher levels of free work for their Employer and I have met plenty of Candidates over the years that were actually working closer to 60 hours a week, than just 50.

I have only witnessed a few Job Descriptions, very few actually, over the years that actually stated up front that a position requires more than 40 hours a week. So I feel pretty confident that the expectation for most positions is going to be an unspoken 40 hours a week as a standard.

A question that should probably be asked in an interview situation, that routinely isn't is this -- What's a typical work week look like ? About how many hours a week do staff typically put in...

If you know going into a position that the baseline is set higher than 40 hours a week, well that's up to you to decide if the compensation for that position is competitive enough to make you willing to commit to those extra hours each week as a standard.

A comparison of the hourly pay equivalent for a 40 hour work week to the hours actually required by a new position can be very insightful as you consider accepting a new job or in negotiating your starting wage with a new Employer.

By calculating the hourly pay equivalent for a normal work situation (40 hours per week) and then doing it again using the higher number of hours you've been given, this can provide you the data you would need to then logically make the case to negotiate a higher base salary.

Some would argue that if an Employer does actually expect more of your time each week than 40 hours, they should probably be willing to compensate you for it. This would also be assuming that you are actually OK doing that extra work to begin with. If so, the argument you present is that you're happy to work 55 hours a week, but you do expect to be paid fairly for that.

If an Employer doesn't want to acknowledge the reality of the math, then they are basically dictating that you are expected to donate your time -- to their cause. Not really sure I want to work for someone who expects that as a normal routine situation. I take that back, I know I don't want to work for someone who expects that. I say that as someone who during my many years of Agency work typically put in 50-60 hours a week on a pretty regular basis. Since I was paid on commission, that extra time was my choice and was done knowing I would also be compensated for it. Even so, in hindsight (being 20/20), if I could go back and talk to myself earlier in my career, I would have told myself to live with a little less compensation and enjoy a little more time with my Family.

There is also a competitive consideration to think about here for Employers.

If an Employer expects more time put in from an Employee than other firms in the local Job Market, for roughly the same job role and experience level, in order to remain competitive and attract/retain good talent, they should then be prepared to compensate more for that. If they don't, they may just earn that reputation of being somewhat of a modern sweat shop.

Paying an Employee less than what the Job Market is dictating their skills & experience is worth, is really somewhat arrogant (potentially abusive), and also risks producing a higher than typical turnover rate.

(Something about -- put your money where your mouth is comes to mind here, or if you like movie references - "show me the money...")

I have seen some cases where a Candidate eventually becomes so tired of being over-worked they have used the hourly pay equivalent to help them feel more confident in accepting a new position at a lower annual compensation rate.

They ended up willing to do this because they can then go home after 40 hours of work is done each week. So while their total annual compensation does end up lower in the new position, their work-life balance has been restored, and their real compensation per hour in the new role is actually the same as the old role, just minus all the excessive overtime they had been putting in at work to get that salary. So each individual needs to make their own decision as to what that is actually worth to them and their Family.

This exercise gets even more maddening when you calculate the hourly pay equivalent for a typical 40 hour work week and then, using the example we did before where the Candidate is actually putting in 50 hours a week, you find that you can in fact move to another Employer at the same salary level where the expectation at the new Employer is for you to just work a typical 40 hour week.

By finding such an Employer, who in essence offers you a lateral salary to come join them, the fact that you are not working any additional hours over 40 is an immediate improvement to your personal situation since you now have hours put back into your life that can be used for other important things.

I don't know about you, but if someone will pay me X per hour for 40 hours of work and my total pay is Y, and another employer will pay me X per hour for 60 hours of work to get to the exact same total pay of Y, I think I'm going to opt to work for the employer who only expects the 40 hours of work. Maybe it's me, but being paid for 40 hours of work in a week and then working 40 hours, not 50, not 60, just seems to make sense.

Time is a resource that all of us have an equal amount of, and when its used none of us can get any part of it back, so it really all comes down to considering just how we want to use it or be compensated for it.

Some of the best Employers I've supported over the years have made it part of their culture to ensure that their staff are working a normal 40 hours a week schedule, as much as possible. They base the compensation they offer on this, they actually monitor and encourage staff to observe this (they have been known to tell staffers working too much to go home), and they recognize and reward staff for those exception situations that require more than 40 hours in a given week.

I remember one Client in particular that sent their staff gift cards to be used to take their Families out to dinner as a thank you for putting in some extra hours over a weekend during a major System Conversion. This firm also gave that same staff some comp time, ie. time off during the week, to make up for the time they invested on the weekend.

So, some firms do get it. Others, too many others unfortunately, not so much. They'll let you work just as much as you want to, or more likely feel you have to... right or wrong, but they won't necessarily compensate you more for doing so.

It's really up to the individual to monitor this and the best way to start is to know what your own Hourly Pay Equivalent is, and to be mindful that working past 40 hours in a week regularly is actually diminishing your true compensation accordingly.

So unless you're in an equity situation, where you own all or part of the firm, working excessive overtime that is not compensated for, is not actually improving your personal situation. The math just doesn't work to your advantage, no matter how you try to spin doctor it for yourself. (sorry, not sorry).

So, back to our original question, at your current job -- what are you being paid ? You need to do some analysis and calculate the hourly pay equivalent for yourself to truly know the answer to that, but do so using both 40 hours a week and then the actual hours a week you've been working.

Some final thoughts --

For anyone who works less than 40 hours a week because it's an industry standard, or a company mandate, you're probably not in some sort of bonus situation here, your compensation has most likely been adjusted for that.

I had an Insurance Client who loved to hype that their standard work week is just 37.5 hours a week and they don't like people working more than that. They viewed it as a way to maintain a good work/life balance for their Staff and believe that it also limits turnover. It also explained why their salaries were routinely lower than other firms in the area, since they were requiring 6.25% fewer hours in a work week from their staff.

For someone who puts a high value on time away from work, their situation is/was ideal. In this case, knowing their hourly pay equivalent and then comparing it to a standard 40 hour work week was/is still useful since it proves they are not really being under compensated for the time they put in at work. So in this case, job satisfaction is maintained when someone may get tempted to look at a higher paying position that has job duties equal to their current situation, only to find out the expectation for how many hours a week they'll put in at the office is also going to be much higher...

As for anyone who isn't working a 40 hour work week, but is being paid for one... You really haven't found a way to beat the math for this Article, you've just somehow found a way to cheat your Employer out of the productivity they should be expecting from you. I don't advise you continue doing so, since it can certainly be grounds for termination.

Like it or hate it, the Hourly Pay Equivalent is the great equalizer when analyzing what you are actually being paid for the time you put into your work and comparing that to another job opportunity you're considering. It certainly highlights why it is important to ask a potential new Employer -- what does a typical work week look like in terms of the hours their staff are expected to be putting in at the office.

Knowledge (and math) is power...