How do you know if a new job is the right way to go? If all other factors are equal, how do you know that you’re not actually taking a cut in pay?

I get asked this question – a lot – because people know I can do the math. (The price to pay of an engineering degree and a teaching license in math, I guess). So today I wanted to get the article out there so other people can see how to work through it.

Bear in mind that this is just the money numbers. There is a price tag on happiness and sanity, and the following article doesn’t take into account dysfunctional workplaces or job dissatisfaction.

## My Friend Pam

A friend of mine recently left her job and started another. Her previous job had benefits, paid time off, a salary, and on-call hours. Her new job is contract, paid by the hour, with similar benefits, no paid time off and no on-call. Did she make the right choice?

Let’s run the math.

The trick with this math problem is to make sure that all things are equal. I’m making up these numbers to make the math easier, but they are based on what she has told me.

## The Salaried Job

Pam had a salaried full time job making $104,000. Her health care cost her $150 per paycheck. She was given 10 paid vacation days a year, plus 10 paid holidays and 3 personal days. She worked an extra 3 hours every three weeks as on-call.

So let’s figure out what her true hourly wage was.

**Base Hours, Both Jobs**

[latex] \frac{40\, hours}{week} \times \frac{52\, weeks}{year} = \frac{2080\, hours}{year}[/latex]

**Overtime, old job**

[latex]\frac{3\, hours}{3\, weeks} \times \frac{52\, weeks}{year} = \frac{52\, hours}{year}[/latex]

**Total amount of paid time off, old job**

[latex]10\, vacation\, days\, +\, 10\, holidays \, +\, 3\, personal\, days\, =\, 23\, days[/latex]

[latex]23\, days \times \frac{8\, hours}{day} = 184\, hours[/latex]

**Total hours per year, old job**

[latex]2080\, +\, 52\, -\, 184\, =\, 1948\, hours\, per\, year[/latex]

**Total cost of health insurance, old job**

[latex]\frac{150}{paycheck} \times \frac{26\, paychecks}{year} = 3900 per year[/latex]

**Effective salary, per year, old job**

[latex]\$104,000\, -\, \$3900\, =\, $100,100\, per\, year[/latex]

**Effective hourly rate, old job**

[latex]\frac{100,100}{year}\div \frac{1,948}{year} = \$51.38\, per\, hour[/latex]

## The New Job

The new job is a contract position. She would be paid $55 per hour, no paid time off, and her health insurance costs are $230 per paycheck.

**Base Hours, Both Jobs**

[latex]\frac{40\, hours}{week} \times \frac{52\, weeks}{year} = \frac{2080\, hours}{year}[/latex]

If Pam wants to take the same time off, she will not get paid, so we have to reduce her hours per year by the time off she will take

10 vacation days+10 holidays+3 personal days=23 days

[latex]23\, days\times \frac{8\, hours}{day} = 184\, hours[/latex]

**Total hours per year Pam will get paid for, new job**

[latex]2080\, -\, 184\, =\, 1896\, hours\, per\, year[/latex]

**Effective base salary, new job**

[latex]\frac{1,896\, hours}{year}\times \frac{55}{hour} = 104,280[/latex]

**Total cost of health insurance, new job**

[latex]\frac{230}{paycheck} \times \frac{26\, paychecks}{year} = 5,980\, per\, year[/latex]

**Effective salary, per year, new job**

[latex]\$104,280\, -\, \$5980\, =\$98,300\, per\, year[/latex]

**Effective hourly rate, new job**

[latex]\frac{98,300}{year}\div \frac{1,896 hours}{year} = 51.84\, per\, hour[/latex]

## The Outcome

If you were to do the easy math calculation, using just the 52 weeks x 40 hours x hourly wage, it would appear that the new job would be better.

However, if you look at the total income per year, it looks like the old job is better.

It is only when you factor in the unpaid overtime that you get to the true comparison: both jobs are pretty much the same.

So where does that leave Pam? She took the new job because it offered more money (false) but also because it allowed her to do more of what she liked. And that, in the end, would be the tie-breaker in this even situation.

Photo by Annie Spratt on Unsplash