In current employment, there are two primary options concerning pay – you can receive a salary or be paid hourly. Knowing the difference between salaried and hourly employees is crucial when considering a new job or position.
Both options have pros and cons, and the choice mainly depends on your situation. In this article, we’ll define the difference between salary vs hourly pay and the pros and cons of each model.
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Salaried employees receive a fixed payment agreed on in the employment contract. For example, you might agree on a $40,000 annual salary. In this case, you’ll receive set sums in a designated pay period – usually monthly. It is stable and predictable.
Hourly workers are paid for each hour. They might receive a salary pay every week, two weeks, or monthly. They do not have a defined annual salary but have an hourly wage. Your income will directly depend on how many hours you’ve worked. Usually, there are regulations for performing at least 40 hours a week.
Many want to be salaried employees in the salary vs. hourly pay discussion. It is easier to calculate pay and set a budget. Also, it is more secure – you will receive your payment no matter how many hours in a week you’ve worked. So even if you are on sick leave, you’ll receive the same amount of money.
However, an hourly position comes with its benefits as well. One of the major ones is that hourly workers receive overtime pay. If you work more than 40 hours a week, your hourly wages for each extra hour are 1.5 of the hourly pay rate. Salaried employees, on the other hand, usually do not receive overtime pay. Although, it depends on the job, company, and employment contract.
There is no right or wrong when it comes to salaried and hourly employees. Both receive payment over the minimum wage. But the key differences between salary vs hourly might influence the type of position you will be looking for on the job market.
Salaried employees enjoy steady paychecks that do not depend on the number of hours worked. They might receive extra pay in the form of bonuses. They have a fixed income, making managing finances and starting a retirement plan more accessible.
A full-time employee might feel more confident and secure. Salaried employees know precisely what amount they will receive in a pay period. But it is not the only benefit a salaried employee receives. A steady income is one of the most significant advantages of fixed annual pay.
It allows planning your financial decisions carefully and pay bills on time. In a salaried position, your pay doesn’t depend on the hours worked. So you can go on vacation, take a day off or sick leave, and still have the same amount at the end of the month. And if you do not have enough tasks for the day, you are not losing income.
Another major advantage for salaried employees is that they often receive benefit packages. It might be in the form of:
Also, you might have a more flexible schedule. Many companies offer remote and work-from-home opportunities for salaried employees.
Salaried positions give a sense of security. You know precisely what you earn and what you pay in taxes. Also, there are plenty of governmental regulations to protect a salaried worker.
Health insurance and retirement plans make avoiding risks and unexpected expenses easier. You may also get additional pay as an annual bonus.
Another strong point is that salaried employees’ career trajectory is more predictable. It might be challenging to negotiate a raise or salary range. But you get a better idea of what opportunities are available for you. Even part-time employees have an understanding of how they can grow professionally or what position they can apply to next.
If salaried positions had only benefits, there would be no discussion about salary vs hourly models. And before you decide in favor of this type of employee compensation, you need to evaluate all the potential cons.
It is probably one of the major cons. Yes, your pay is independent of number of hours worked. But it also means that you will most likely not receive paid overtime. Salaried positions usually do not offer such an option. And when you are working overtime hours, you still receive the same fixed compensation.
Of course, some companies might have policies about what employees are eligible for overtime pay, but this has to be stated in the contract. The company might require you to work longer hours or during holidays without any additional compensation.
Also, an exempt employee is not subject to overtime pay and/or minimum wage rates. According to FLSA, it can apply to managers, teachers, sales representatives, or truck drivers. You will not get paid for extra hours if you are a salaried employee in one of these positions. Or you might not be eligible for minimum wage.
Salaried workers have trouble combining full-time employment with side hustles or additional income sources. For example, if you want to have a side hustle, it might be tricky to balance it out as your schedule is set and fixed.
There is less flexibility in terms of vacations and holidays. Salaried workers must often adjust their plans to state holidays or the company’s requirements. Also, there is no flexibility if you do not have an eight-hour workload. Salaried workers still have to be in the office, while hourly workers can go home as soon as the job is done.
Hourly employees have more freedom when deciding how long they want to work. Hourly wages have to meet the federal minimum wage. But in many cases, they are higher.
The best part of being paid hourly is that all your time is paid for. If you work more than 40 hours a week, your hourly wage will be higher. Usually, it is 1.5 times higher than the standard one. When working on holidays, an hourly worker can receive twice higher wages for each hour worked.
It is a great advantage compared to a salaried employee who receives a set amount of money. Overtime wages can significantly increase your income. And you won’t need to find a side hustle to earn more. You can ask for more hours a week; usually, employers are happy to give them.
Hourly employees are also in more control of their schedule. You can either take extra hours when needed or work less. Of course, federal law often requires one to work at least 40 hours a week. However, it depends on state regulations and the specifics of the position.
But overall, an hourly worker has more flexibility than a salaried employee. It makes hourly positions accessible for students or people balancing various responsibilities.
According to law, a regular hourly rate always meets the minimum wage. For a salaried employee, it might not be the case. Some of them are exempt from such a regulation.
Although an hourly wage seems confusing to calculate initially, it is easy to budget. You know that you are compensated on an hourly basis. And you usually receive the compensation in the form of weekly pay. Yes, the annual wage will depend on how many hours you’ve worked. But it also means that you are more in control of your workload.
Hourly employees do not have the same level of security regarding a steady income. You might not always be able to predict paid time for a month. People get sick or have other responsibilities. So if you work fewer hours, your income suffers accordingly.
Another disadvantage that separates hourly and salaried positions is benefit packages. Overall, hourly employees do not receive health insurance, retirement plan, or paid sick leaves.
At the same time, if you earn more due to overtime work and higher wages, you can work on those issues individually. It is a matter of what works best for you. However, hourly employees rarely go on corporate trips or receive annual bonuses.
Hourly pay comes with lesser stability in many regards. The career trajectory is not straightforward. And if your employer gives you fewer tasks, you won’t be able to receive the expected income. An hourly employee is less secure in terms of employment contracts. Companies are less inclined to invest in professional growth or additional training. However, it depends on the business and your contract. If the shift is docked, an hourly employee will not be able to earn as much.
