What is annual salary?
What is it, really? How is it calculated? Learn about the different elements and compare annual salary to hourly rate.
5 min read
An annual salary is the amount of money a company pays you in exchange for the job you do during the year. Although you might receive wages every month or twice per month, it’s still important to know your annual salary for tax purposes—or in the event you apply for another job. Read on to discover everything you need to know.
What is annual salary?
An annual salary is the total amount of money you earn from a job in a year. This figure is usually calculated per calendar year, covering the period from January to December. Alternatively, sometimes a company will follow the financial or fiscal year—this is a year calculated for tax and accounting purposes which can run from October to September. If you start a job part way through the year, your annual salary will be prorated, which means your salary will be reduced proportionally to the months that you actually worked.
What is an annual base salary?
Your annual base salary is the minimum amount of money you’ll be paid for the work you do. This is fixed income that you’ll usually receive through regular paychecks throughout the year. This figure does not include any additional bonuses or commissions that may be included in your contract. Discover more about your base salary—whether it’s quoted as one lump sum, or as an hourly, weekly, or monthly figure.
Gross salary vs. net salary—what’s the difference?
Your gross salary is different from your annual base salary. This is a figure shown on your paycheck that includes everything you earn with a company, before any taxes or deductions have been made. This is the figure banks often use to assess if they’ll approve you for a loan or credit card. Your net salary, on the other hand, is the amount of money you receive once tax and other deductions have been taken, so these will be different amounts and should be outlined in your paycheck. Understanding your gross and net salary can be important if you’re trying to work out your budget.
Annual salary vs. annual income
An annual salary is paid by your employer—the company you work for. It’s usually a yearly salary paid over 12 months, hence the term annual. On the other hand, your annual income is the total amount of money you earn over the year. This amount includes your salary, but also income from other sources, such as interest from savings or rent for a property you own. Your annual income could also include any bonuses or overtime pay.
How to calculate annual salary
If you work full-time for a company, your annual salary should be clearly defined within your employment contract. However, if you’re paid hourly, daily, or weekly, you may want to work out your total annual compensation yourself to have an overview for the full year.
Assuming you are a full-time, paid employee with paid holiday, this can be done through a simple formula. For example, let’s say that you work 8 hours a day, 5 days a week. There are 52 weeks a year, in which you might earn €28.50 an hour. You would calculate your annual salary with the following sum:
8 x 5 x 52= €59,280 annually
Note that any additional time off, e.g. unpaid sick leave, may change the overall end salary you accrue.
Just remember, this is your gross annual salary—The amount you earn before things like taxes, healthcare costs, and other deductions are taken out.
How to convert annual salary to hourly rate
You can simply reverse the above formula to work out an hourly rate from your annual salary, dividing it by the number of weeks and hours you work per year. For example, you might work 40 hours a week over 52 weeks. If you have an annual salary of €59,280, your hourly rate would be:
€59,280 ÷ 2,080 (40 x 52) = €28.50 an hour
Annual salary vs. hourly pay—which is better?
This will depend on a few different things, such as the industry you’re in and the type of contract you have. If you work for yourself and not a company, you’ll be classed as self-employed or a freelancer and therefore will usually be paid using an hourly—or daily—rate. Some people prefer this way of working because of the flexibility and variety of work. Freelancers are also paid once a job is completed in one lump sum, rather than monthly as with salaried employment. Earning an annual salary by working for a specific company suits some people more because it’s a regular working pattern and you’re paid the same amount every month. This can provide stability and can make it easier for future planning and budgeting. It’s worth exploring hourly pay vs. salary in more detail to understand what would suit you.
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Considering a job offer? What to know about annual salary
When you receive a job offer, make sure that it’s in writing and details the main terms of employment. This usually includes your working hours, responsibilities of the job and your yearly salary. It’s a good idea to check if you’re being paid a minimum annual salary, and if bonuses or commissions are part of your package. If so, what do you need to do to receive them and when are they paid? You should also check out what other benefits are being offered, such as healthcare, retirement savings, or a company car—these elements could be taxed as part of your salary.
It’s helpful to have your annual salary paid straight into your bank account. This is often how companies pay their employees, and it’s a quick and secure way for you to get your money. By having your salary paid directly into an N26 account, you can manage your money from your smartphone, wherever you are 24/7. You’ll also get access to Statistics, our innovative feature which automatically categorises all of your transactions to help you understand your spending. And the best part—it only takes 8 minutes to open an account.
What’s a good annual salary?
This will depend on your personal situation, such as your age, the field you work in, and your living circumstances. For example, if you live with family, your rent and bills may be lower, giving you more disposable money to spend on activities and leisure. Living in a rental property or owning a house will usually require you to budget for these extra costs. You could also apply the 50/30/20 rule to your salary—where you divide your pay into the three spending categories: 50% for needs, 30% for wants, and 20% for savings or debts. What’s most important is that you have enough to comfortably live on.
What does median annual salary mean?
Median is another word for average, so a median annual salary refers to the average annual salary for certain industries and job roles. This is usually calculated by taking a range of salary amounts for a role. For example, let’s say the average salary amounts for a role were €20,000, €30,000 and €40,000. To get the average, you’d add up these 3 numbers, then divide by the number of salaries (3). The median salary, therefore, is €30,000. This figure represents the middle value of the annual salaries—some of the salaries will be higher and some lower than this amount.
Can I negotiate my annual salary?
Yes, you can try to negotiate your salary, but it’s a good idea to do some research beforehand. Explore the annual salary ranges for similar types of jobs, to find out what other companies are paying. This will help you be realistic about what you’re asking for, and start the negotiation from a stronger position. It can sometimes feel a bit daunting to ask for more money, but if you don’t ask the question you will never know what the answer would be. It also shows you have ambition and value your worth.
How do you calculate an annual salary from your monthly salary?
You can calculate your annual salary simply by multiplying your monthly salary by 12. For example, if you have a monthly salary of €4,375, multiply this number by 12 months to give you an annual salary of €52,500. Remember, the gross salary is a figure before any tax deductions are made, so will be higher than the amount you actually receive into your bank account. You can work out your net annual salary by looking at your paycheck after these deductions have been taken from the overall amount.
What is annual income?
Your annual income is the amount of money you receive during the year into your bank account, before any deductions. It’s helpful to break this down by the two words—annual means year and income means money earned. It will include your annual salary and other sources of income, such as bank interest on a savings account, commissions, or bonuses. This could also cover social security costs, retirement funds or pensions, and any income from a second job or extra work.
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