Basing hourly wages on 52 weeks or 2080 hours a year is a misleading oversimplification that we’ve all fallen for. Albeit a seemingly minor one, it’s a mathematical error that could be costing your budget thousands of dollars every year.
If it were up to us, we would change the game and stop using 2080 in our application’s budget builder, since it actually only equates to 364 days. But I can say with absolute certainty that some clients would come down on us with the fire of a thousand suns for not using 2080, because it’s the standard. If anything should be as accurate as possible, it’s your proposed labor budget. But it’s going to take an entire industry to agree to change their way of thinking.
Our eyes were opened to the 2080 flaw at the end of 2015. Our clients started running the BalancedComp app’s budget builder to get 2016 numbers and couldn’t understand why the final totals were slightly higher than the annualized totals (which are strictly based on 365 days). We quickly realized 2016 was a leap year, so there was an extra day included in the final totals.
Problem Solved. Right?
Well, it was, until we went all ‘Beautiful Mind’ on the office windows trying to figure out how we could ensure one day of wages was being accurately calculated.
Here’s how that math works out
Let’s say “Herbie Hancock” works 40 hours/week and earns $10/hour. At $10 * 2080 hours, his annual wages should be $20,800...right?
I don’t like it, not even a little. And neither should you.
Sure, we could all call it 2080 for the sake of argument, write-off the seemingly minuscule difference, and have one less thing to worry about.
But we built a web application. With a computer. That uses math.
So this is what status quo looks like:
Budget Builder: How many days are in this budget?
Budget Builder: Super. I see that Herbie works 40 hours a week and makes $10 an hour. You said 365 days, right? Let me just turn that into weeks real quickly and uhhh…order of operations...carry the 1…8s look like 0s that have tight belts on...focus!…ok that’s 52.14 weeks, and he’ll make $20,856! Nailed it!
User: Nope. Don’t do MATH math.
It’s my understanding that the 2080 rule is perpetuated even in college courses because it significantly simplifies the process of estimating annual wages for hourly employees. I can see why someone would use it if they were building a labor budget by hand in a giant spreadsheet. But our budget builder does an impressive amount of math in mere seconds, and it could easily incorporate a full 365 days, or 2085.6 hours, if it weren’t hindered by the standard.
Ultimately, we were forced to do a bunch of crafty math to make the accurate 365-day math inaccurate so it aligns with best practices. Vehemently adhering to 2080, and therefore proposing a slightly inaccurate labor budget, could keep HR in the passenger seat. That’s antithetical to our intentions here at BalancedComp.
Our app was forged to put HR in the driver’s seat; the budget builder tool was built to serve a philosophical purpose:
HR knows better than anyone else why and how annual increases should be tied to where an employee is in their range, as well as their performance level.
Other planned features for the app include forecasted budgets up to three years and allowance for HR to add “ghost employees” they intend to hire. But as long as we stick with 2080, the numbers will always be a little off and we won’t be able to have nice things.
What do you think about the 2080 rule? Look forward to your feedback here in the comments.
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