Many farm employees are paid a salary rather than wages for a multitude of reasons. One important reason that is often cited is that it is easier for farm employees to budget on income that is even throughout the year, otherwise, the fluctuation of hours worked during the season means higher levels of income in some months and lower in other months. Whatever the reason, it is important to be able to know what the hourly rate converts to.
So why convert a Salary to an Hourly Rate of Pay?
It is important that an employee’s salary is converted to an hourly rate of pay as this rate of pay will be used for the following purposes:
- To determine that they are not being paid below the minimum hourly rate based on the hours they work
- When a salaried person works on a Public holiday the Time and a ½ is worked out on actual hours worked for that day multiplied by the hourly rate of pay.
- It is important for comparison purposes i.e. how much you would have ended paying an employee on an annual basis if you paid them at an hourly rate compared to the salary you paid them for the year.
- It is also important to know this number in the event an employee wants to be paid on an hourly rate and you have always paid employees in the past a salary. Therefore without being able to convert the salary into an hourly rate, how would you know if you are paying them more or less than what you were willing to pay as a salary.
Working out the Hourly Rate of Pay for Salaried Employees
You need to know:
- Total Package Value (TPV) i.e. the Cash portion of salary plus value of other benefits such as accommodation
- Roster for the entire season, including the seasonal variations. This should be sourced from the Employment Agreement and clearly defines the roster for the season…..which in turn determines the exact entitlement of RDO’s.
- Daily Contracted hours – What might the normal daily hours of work be? ….8, 9, 10?
- The roster pattern and the daily contracted hours result in determining the “Weekly Contracted Hours” e.g. 50 hours.
Note: It is imperative that either the weekly contracted hours or the daily contracted hours are clearly defined in the Employment Agreement.
TPV = $52400
Roster from Employment Contract = 11:3 but 6:1 for 2 months, contracted daily hours = 9
Step 1. The KEY STEP is to Work out the total number of Rostered Days off for the season, which happens to be 74 RDO’s in this case. There are so many complex rosters used on NZ dairy farms, that it is a challenge in many cases to calculate this number accurately . Our Agrismart Roster Builder feature will calculate this number in seconds whatever the scenario.
Step 2. Then work out the number of days worked in the week, in the above example is 5.59 work days per week.
Step 3. The number of hours worked per week is 50.31 hours per week.
Step 4. And finally the Hourly Rate of Pay will be the TPV (Total package Value) of $52,400 ÷ 52 weeks in a year = $1007.70/ week ÷ 50.31 = $20.02/ hour.
As you can see from the above example, calculating the hourly rate of salary can be quite complicated. If you are unable to accurately determine the number of days worked per week (which is based on calculating how many days off you have in a year), you will never be able to calculate the hourly rate accurately. At Agrismart the whole calculation is done automatically using our in-built wizard, so you don’t have to worry about working off the wrong numbers and getting the wrong answers when you are making important decisions about your employee remuneration.