Firstly, what is annual salary? Annual salary is the annual equivalent pay rate as at the last day of the pay period. So, if the employee has had a pay rise during the year, the annual salary is based on the employees new pay rate, and ignores the fact that they were paid less earlier in the year. Because of this, the annual salary will not necessarily match the annual earnings at the end of the year.

Weekly and Fortnightly Payruns
Businesses that pay their employees weekly or fortnightly pay their salaried employees the same amount each pay run. But for weekly pay runs, there can be either 52 or 53 pay days per year, and for fortnightly pay runs, there can be either 26 or 27 pay days per year. 

Because of the different number of pay runs, if you calculate annual salary as the per period pay multiplied by the number of pay days in the year, your employees annual salary will go up some years, and down other years. This can create some confusion.

Another way to calculate annual salary is on an accrual basis. What this means is that you calculate annual salary based on the number of days the employee will work in the year, not the number of times you will pay them. This method is more accurate and prevents the salary appearing to change each year.

Paycycle uses the accrual basis to calculate annual salary.

Monthly Pay Runs
Most business that pay their employees monthly just pay 1/12th of the annual salary each month. Some prefer to change the payment based on the number of week days in the month.

Leap Years
Leap years add an extra degree of complexity to annual salary calculations. If you pay an employee $50,000 per year on a weekly basis, do you reduce their weekly pay in leap years so that the total pay is still $50,000? Most people don’t. They just do the weekly pay calculation based on a 365 day year, and the employee gets a little bit extra in a leap year (which, considering they have to work an extra day, is fair enough).

Formulas
Convert annual salary to a daily rate: Daily Rate = (Annual Salary / 365) * 1.4
For an hourly rate, divide the daily rate by the number of hours worked in a day.