Calculating wage to salary conversion
Converting an hourly wage to an equivalent annual salary requires more than simple multiplication. You must account for all components the employee currently receives.
Basic conversion
- Hourly rate × 38 hours
- × 52 weeks
- = Annual base salary
- e.g., $30 × 38 × 52 = $59,280
Full conversion
- Base salary
- + Expected overtime value
- + Penalty rate value
- + Allowances = Total salary
Full wage to salary calculation
When transitioning an employee to salary, calculate the total annual value of their current award entitlements:
Complete conversion calculation
Award requirements for annualised salaries
Many Modern Awards have specific clauses for annualised salary arrangements. These typically require:
- Written agreement: Employee must agree to the arrangement in writing
- Salary specification: State which award entitlements the salary covers
- Hour recording: Continue to record actual hours worked
- Annual reconciliation: Compare salary to award entitlements annually
- Shortfall payment: Pay any difference within 14 days of reconciliation
Annualised salary reconciliation
Under many Modern Awards, employers must reconcile annualised salaries at least annually. Compare what was paid against what the employee would have received under the award. If there's a shortfall, pay it within 14 days. This requirement makes ongoing hour tracking essential even for salaried employees.
Common wage to salary mistakes
Using base rate only
Converting only the base hourly rate without accounting for overtime, penalties, and allowances the employee currently receives leads to underpayment.
Stopping hour tracking
Assuming salaried employees don't need time tracking. Awards typically require ongoing hour recording for reconciliation purposes.
Skipping reconciliation
Not performing required annual reconciliations. If actual entitlements exceeded the salary, you may owe back-pay plus interest.
No written agreement
Converting to salary without proper documentation. Award requirements often mandate written agreements specifying what the salary covers.
Key takeaways
Converting wage to salary requires calculating the total annual value of all award entitlements—not just base pay—and ensuring the salary exceeds this amount. Many Modern Awards have specific requirements for annualised salary arrangements, including ongoing hour tracking and annual reconciliation.
Even after converting employees to salary, continue tracking hours with time and attendance software like RosterElf. This data is essential for annual reconciliations that verify the salary adequately covers all award entitlements.
