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How To Calculate Wage Rate Per Hour

By on October 5, 2011

How To Calculate Wage Rate Per HourMany companies prefer to pay a monthly remuneration to their employees. In manufacturing or labor intensive industries, labor engaged in production activities are paid wages on an hourly basis.

Irrespective of the day on which payment is made by the company, total hours worked by an individual during the period of pay are calculated and multiplied with per hour rate.  In case of consulting/service oriented industries, it is a common practice to quote a consultant’s per hour rate to the client. For Instance, a management consulting firm may quote a rate of $ 45 per hour for providing consulting services in corporate taxation to its clients.

Let us understand how Wage Rate Per Hour will get Calculated

Calculate Total Salary

An employee may receive salary in the form of different components such as basic salary, house rent allowance, conveyance allowance and so on. In order to calculate wage rate per hour, a company should arrive at the total salary of an individual by adding all the components of the compensation package. In many cases, employees are also given overtime allowances and incentives for good work performance. These extra benefits should also be included in the compensation package in order to calculate accurate wage rate per hour.

Decide the Basis

A company can calculate wage rate per hour either on the gross amount or net amount of the salary (gross salary minus savings minus income tax).  Depending on the basis, a company can easily calculate wage rate per hour by calculating total hours worked by an employee in a year or in a month.

Calculate Total Hours

Depending on the period (year or month),  total hours worked by an employee during the relevant period can be calculated by multiplying the number of days worked by an employee with the number of working hours in a single day. For Instance, an employee has worked for 20 days in the month of June 2011. Total working hours in a single day are 8 hours.  Hence, total hours worked by this employee in the month of June 2011 would be 160 hours (20 days *8 hours per day).

In order to calculate the total number of working hours in a year, number of working hours for a single month can be multiplied with 12. However, this may lead to a misleading figure as working days in the month of February are generally less than the number of days in other months. Wage rate per hour can also be calculated by estimating the number of hours worked by an employee in a week and multiplying the resultant figure with the number of weeks in a year (generally 52).

Divide Total Wage by Total Hours

In order to arrive at per hour wage rate, total amount of salary (gross or net) will have to be divided by the total number of working hours. For Instance, an employee has received a net salary of Rs. 54,000/- after all deductions for the month of July 2011. Total hours worked by this employee in July 2011 were 180 hours (assuming 20 working days and 9 working hours per day). Rs. 300/- (Rs. 54,000/180) will be the wage rate per hour for this employee.

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