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How Switching to Remote Work Can Double a Worker’s Effective Hourly Rate

I’ve been re-reading financial independence classic “Your Money or Your Life” and it struck me that the exercise where you calculate you “effective hourly wage” after including all work-related expenses (commute, clothes, etc.) is probably one that many people could benefit from doing during this pandemic. I say this because many people during COVID-19, who have been fortunate enough to keep their jobs, have been forced into remote work situations. As a result they’re not commuting each day, eating lunch out of the house, dressing up in work appropriate attire, or doing many of the other things that would normally be required.

In order to do this analysis I’ve created some assumptions about the person and the life changes they are seeing:

  • Lives in California, at tax rate of 30% of gross salary
  • Makes $100K annual salary, before taxes
  • Spouse does not work
  • Works 40 hours per week
  • Has 2 weeks of paid vacation and 2 weeks of sick days
  • Used to commute 45 minutes each way, 5 days a week (6.5 hours total)
  • Commuted by car with $400/month payment, using 1 $50 tank of gas per week
  • Paid $100/month for car insurance
  • Spent $15/day for lunch + $5/day afternoon coffee at the corner deli/cafe
  • Spent $300/week for after school care for 2 kids from 3 – 6pm
  • Spends $2K/year for work-related clothes and any dry cleaning
  • Spends $50 each week on after work food/drinks with colleagues 

Calculating the Effective Hourly Rate

The simple math to calculate our hourly pay says we take $100K and divide it by 48 working weeks, and then divide that by 40 hours per week = $52.08/hour

This simple math is misleading, because it doesn’t take into account all the unpaid time and unreimbursed expenses that are involved in the lifestyle of a commuting worker. To create a more accurate picture, we can calculate as follows:

$100K salary – 30% Taxes ($30K) – Yearly Expenses ($14.4K afterschool care + $4.8K car payment + $2.4K gas + $4.8K on food + $1.2K car insurance +$2K clothes / dry cleaning + $2.4K after work food/drink) = $38K effective annual income

Now divide this by 1,920 working hours (48 weeks at 40 hours per week) = $19.79/hour

And we still haven’t added in the 312 unpaid hours spent on commuting, bringing us to $42.8K divided by (1,920 working hours +312 commuting hours) = $17.03/hour effective hourly rate

This is how the math works out, and why someone who has finally broken through to making that elusive status symbol of “six figures” can still be struggling to get by with less than $20/hour of effective real hourly wages after taxes and work-related expenses. 

Given the general recommendation to spend 30-50% of gross salary on housing, this person might feel spending $30K – $50K on rent/mortgage ($2,500 – $4,200 per month) makes sense, especially for a family of 4 needing a 3 bedroom place within a 45 minute drive to the office. At the low end of housing cost, this leaves ~$1,000/month to cover all discretionary spending (food, Internet, cell phones, healthcare,home and car repairs, etc) and on the high end the family is now spending more than they make simply to put a roof over their heads. It is likely that the spouse, if there is one, will have to take on at least part time work to make this situation sustainable.

How the Numbers Change for Remote Workers

Now let’s look at the effective hourly wage for the remote worker who does not commute or own a car, needs no after school care for the kids, does not by specialized clothes for the office costuming, and saves $10/day by needing just $5 for their lunch meal and afternoon coffee at home. They are also reimbursed by the company for their high speed Internet service, and their calculation looks like this:

$100K salary – 30% Taxes ($30K) – Yearly Expenses ($1.2K on food) + Reimbursements ($1.2K high speed Internet) = $70K effective annual income

They also do not commute, so we don’t have to add in those extra hours spent on the road. $70K divided by (40 hours x 48 weeks) = $36.46/hour effective hourly rate


Wow. From $17.03/hour to $36.46/hour. The switch to working remote has more than doubled this person’s effective hourly rate. 

Obviously your mileage may vary, and you might include or exclude different variables for your own calculation, but it is clear the move to remote work confers major benefits on workers. 

This post doesn’t even begin to dive into the benefits to companies, like not having to lease commercial real estate and manage physical spaces, but that is widely covered elsewhere. If you’re considering making remote work a permanent part of your life, possibly combined with a move to a lower cost of living place with more favorable tax rates, this is something to keep in mind.

One Comment

  • Tim Almond

    That’s a really good post. I discovered some of this as I worked from home and I started quoting clients and one wanted me to come into the office in London every day. So, I priced up the extra costs (taxi to station, breakfast on the train, time, ticket, general misery of having to work in London) and I nearly doubled my price.

    It’s also weaning me off cars. I drive this awful beater, but when I’m only doing 1500 miles a year, do I care? Do I want a £300 monthly lease for 100 miles? Maybe I take the bus, use an ebike, cabs and for edge cases, hire a car for a weekend.

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