Somewhere in our popular consciousness, we have the notion that a salaried, full-time job involves a 40-hour work week, and that the time that we are not working at our 40-hour per week job is free time, or what we consider our “life.” In our 168 week, we work those 40 hours to earn the money we need to pay for the other 128 hours in the week, life.
When it comes to thinking about working a full-time job versus working independently, most of us compare our independent earnings to our previous salary. But that is not an apples to apples comparison. Full-time work has additional benefits and costs, just as independent work does.
To understand which kind of work is a better “deal’ for you, you need to take a closer look at the real value of your time at a salaried position vs. the value of your time in your independent work life. Take hidden costs and benefits into account, and you might be surprised by the results.
The simplest way to calculate the hourly value of your time at a full-time job is to take your annual salary, divide it by the number of weeks in a year and then divide that number by the 40 hours you work each week. So, for a salary of $100,000, your hourly rate would be $48.
That actually seems pretty reasonable: Your work is worth $48/ hour.
But, there are some obvious flaws in this thinking. The first is about the time we spend at the job. While I know there are plenty of people who work a 40-hour week, I don’t know about you, but I myself have never worked in a job where a 40-hour week was the norm and I can’t think of too many salaried people I know who work a 40-hour work week these days. On top of that, it takes time to get to your job every day. While the average American commute is 25 minutes each way, if you live in a major metropolitan area, it wouldn’t surprise me to hear that your commute is 45 minutes, an hour or even more. That kind of commute can easily add 2 or more hours to your working day. Many jobs also call for additional time, including business travel, dinners and the like.
On the flip side, your job pays benefits. These benefits usually include health insurance , paid sick days and vacation time. So, to calculate the actual value of your time, you would add the cost you would pay for your insurance (and any other perks your company might offer that you use, that is to say, if your company offers subsidized childcare and you use it, add the value of that benefit. But if your company offers a crisis hotline that you never ever use, don’t add the cost of that) to your annual salary and divide by the number of weeks you are actually working (52-the number of paid vacation, holidays and sick days your company offers) and then divide by the number of hours you actually work per week, plus any other time that is dedicated to your job, including commuting, business travel, an company-mandated socializing.
For our hypothetical $100,000 salary, let’s assume the following:
Insurance Value: $1000/month or 12,000/year
Vacation: 2 weeks of vacation
Sick and Personal Days: 5
Paid Company Holidays: 10 days (Christmas, New Year’s, Memorial Day, Labor Day etc.)
Daily commute: 45 minutes each way
Additional time dedicated to work: 4 hours/month.
Now your hourly rate is $41. That’s 15% less than you thought.
What’s more, going back to the original concept of time, and “work” time vs. “life” time, you are actually dedicating 59 hours of time to your 40 hour/week job. It’s not bad, but you’ve got to wonder if you could do better. (In the next set of exercises, we will calculate how much free time you actually have.)
Now, do the same exercise as above for your independent working life. Instead of salary, include all your sources of income. You probably don’t have benefits and you probably don’t get paid if you are truly on vacation, so only include paid holidays if you do, in fact get paid when you are not working. Add time that you spend on networking and business development for your independent working life, as well as time that you dedicate to billing, invoicing and book keeping.
In this hypothetical scenario, let say that having left your full-time $100,000 per year job you are now freelancing at a rate of $75/hour, pretty typical for skilled freelance work. You work 3 days per week, and one of them you can do from home. Now you are making 1800 per week.
If you take the same 5 weeks of unpaid vacation, holidays and sick time and you dedicate 10 hours per month to business development, networking and book keeping, your effective rate is now: $65 per hour, almost 35% more than when you were working at a salaried job.
Would you like to try the calculation for yourself? Download my TimeValue Excel Calculator and send me your feedback or let me know how your results turn out in the Comments section below.