Question 1

How do I calculate my effective hourly rate?

Accepted Answer

Your effective hourly rate is your actual take-home pay divided by total hours worked, including unpaid overtime and commuting. For example, if you earn £35,000 gross (£27,500 net after tax/NI) and work 45 hours per week including 5 hours unpaid overtime, your effective rate is £27,500 ÷ (45 × 52) = £11.75 per hour. This reveals the true value of your time and helps you evaluate whether extra hours, promotions, or job changes are worthwhile.

Question 2

Is overtime worth it after tax?

Accepted Answer

Overtime is taxed at your marginal rate, which might be 20%, 40%, or even 45% plus National Insurance. For basic rate taxpayers, overtime pays about 68p per £1 earned (32% tax+NI). Higher rate taxpayers keep only 58p per £1 (42% tax+NI). Whether it's worth it depends on your hourly rate and priorities. Overtime at £20/hour effective might beat a second job, but if it's pushing you into a higher tax bracket or costing you family time, it might not be worthwhile.

Question 3

How does salary sacrifice affect hourly pay?

Accepted Answer

Salary sacrifice for pensions reduces your gross pay but increases your net hourly rate by saving tax and National Insurance. For example, sacrificing £200/month saves £66 in tax+NI for basic rate taxpayers (£200 pension costs you £134 net). This means your effective hourly rate increases because you're paying less tax per hour worked. It's one of the most tax-efficient ways to save, especially for higher earners. However, it can affect mortgage applications and some benefits calculated on gross salary.

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