Salary Vs. Hourly Pay: Key Differences

Most employees receive either a salary or an hourly wage. There are a few differences between these types of positions, and there are advantages and disadvantages to both.

The key difference between salaried and hourly employees is exactly what it sounds like – how they are compensated for their work. Hourly waged employees receive payment for each hour they work and have the right to receive overtime pay if they work over their allotted 40-hour workweek. Salaried employees are generally not eligible for overtime pay but receive a steady paycheck with the same amount each week.

What Is a Salary?

A salary is a consistent payment that an employee receives for working their full-time job. Salaries are usually calculated on an annual basis. Paychecks are most often distributed on a monthly or bimonthly basis, depending on the organization. The amount and frequency with which you receive your compensation will vary by company, employer, and sometimes the department you’re part of.

Salary payments are fixed amounts and are typically not renegotiated outside of promotions or annual review periods.

Many large employers provide a set range for the positions available at their companies. This range can be determined by industry average, place of residence, as well as your position type, level of experience, and abilities you bring to the table.

Salaries can also relate directly to your education level and any credentials or certifications you may have. They can be negotiated based on your skill level or experience in previous jobs.

Supply and demand can also impact these numbers, depending on the state of your industry or job market. You can typically get better offers in areas with multiple vacancies for jobs in your skillset or career path.

What Is an Hourly Rate?

An hourly rate is the amount of money an employee receives for each hour they’ve worked. Hourly employees are considered non-exempt employees under the Fair Labor Standards guidelines, which means they’re eligible for overtime pay.

If hourly wage employees work over the normally allotted workweek of 40 hours, hourly employees are typically eligible for overtime. Overtime work pays time and a half, so you would receive your typically hourly wage and another half of it for each hour you’ve worked.

An hourly employee’s hours might differ based on a variety of different things. For example, some employees might have a schedule they must stick to during certain hours. Other hourly employees might have a shift schedule that changes every single week, so the amount of hours they receive will vary from week to week.

Hourly employees are entitled to at least minimum wage. This wage varies depending on where you live. However, employers must pay their hourly employees either the state or federal minimum wage, depending on which is higher.

Salary vs. Hourly: Pros and Cons

Salary Pros:

• No time tracking. Salary employees typically work 40 hour weeks or more, but there is no need to fill out a timesheet or document your hours (unless you are in a services role.)

  This allows salaried employees to complete their work in the time it takes them, rather than needing to fill unnecessary hours. There’s no need to pay attention to the exact time you clock into work or the exact time you leave. This offers some flexibility to the job.

• Benefits. Salaried employees typically earn benefits such as health insurance, life insurance, retirement plans, and more.

  This is a common benefit provided to salaried employees at organizations and is offered in a well-rounded package.

• More promotion opportunities. Salaried jobs often provide employees with more opportunities for advancement or a clear-cut career path to follow. There are more promotion opportunities available at salaried jobs, often with generous pay increases.

• Steady pay. One of the best things about being a salaried employee is the certainty in your pay. You don’t have to worry about the number of hours you worked or taking time off because your paycheck will be the same every week or month you receive it.

  If something urgent arises in your life that you need to step away from work for, you don’t have to worry about the stress of when or how much you’ll be paid next pay period.

• PTO and paid vacation. Along with better benefits packages, salaried employees typically receive paid time off or paid vacation time. This helps reduce the stress of getting sick or taking time off for vacation or emergencies.

  You can take care of things in your personal life without needing to stress about the amount in your next paycheck.

Salary Cons:

• Salary remains the same. Regardless of the number of hours worked, your salary will stay the same. This can be a downfall to receiving a salary, especially if you work many more hours than the typical 40 hours.

  Be sure you understand what the job entails and figure out how much time it takes you to do a day’s work. Sometimes, even if you are receiving a salary, the actual breakdown of payment per hour can be a detriment.

• No overtime. Unlike hourly employees, salaried employees are not eligible for receiving any overtime except in special circumstances. This can be a con for salaried employees who work extensive hours, especially as it relates to certain projects or events

• Office culture. Salaried employees are typically competing with other salaried employees. In today’s office culture, there is sometimes competition as to how many hours you’re working in the office.

  Many employees lose their balance between work and life, resulting in detrimental burnout if you’re trying to keep up. To this end, salaried jobs can typically be much more stressful than hourly jobs.

Hourly Pay Pros:

• Paid for every hour. As an hourly employee, you are paid for every single hour you are on the job. This is beneficial for many people who may need some flexibility in their schedules and work more on certain weeks or days, but still receive the pay they need to make ends meet. You can rest assured every moment of effort you put into your job will be paid out as an hourly employee.

• Overtime. One of the best benefits of being an hourly employee is your eligibility to receive overtime. Overtime pay is time and a half, meaning if you are typically paid $15 an hour and work 20 hours of overtime, you’ll receive $450 in total payment. This is also a significant benefit for employees who are required to work on holidays, as most employers offer the same benefit on major holidays.

• More flexibility. Because hourly employees are paid hourly, it means you may have more flexibility in your schedule. You may have one or two days off during the week but still be required to work weekends. This gives you the ability to schedule your doctor’s appointments, errands, and outings on less busy days. It also allows you to be able to take time off work more easily.

• Opportunity for more work. Similar to taking time off, hourly employees are also able to pick up extra hours more easily. Typically, at hourly paid jobs, there are opportunities for more work should you need it.

Hourly Pay Cons:

• Overtime may not be an option. Although most hourly paid gigs provide overtime, there are certain instances where the employer is strict about the 40-hour a week rule.

  These organizations might cut off your hours exactly at 40 hours, so they are not required to report or pay overtime to their employees. Be sure you understand this before you say yes to an hourly job offer.

• Inconsistent schedule. Although this can be considered a benefit by many, it can also be considered a con. Depending on your manager or employer, you may not receive your schedule until the last minute, making it harder to schedule appointments or outings.

  The inconsistency can also lead to inconsistent paychecks, so be sure you understand what hours you are promised before taking an hourly job.

• Fewer benefits or bonuses. In contrast to salaried positions, hourly positions typically do not receive the same type of benefits.

  Although there are businesses that offer their hourly employees benefits packages, it’s common for employers not to offer this to their hourly employees. Ensure you understand what benefits come along with any given job before you take it.

Salary vs. Hourly FAQ

• Is it better to be paid hourly or salary? It is better to be paid a salary if you prefer consistency and better to be paid hourly if you prefer greater flexibility and opportunities to earn extra money.

  An individual working in an hourly position with plentiful overtime can easily earn more than a salaried employee performing the same role. It’s also easier for hourly workers to take on a second job or do freelance work on the side.

  However, if your field or industry doesn’t typically involve overtime and you’re not regularly working more than 40 hours a week, then a salaried position is viewed as the better option by most professionals.

• Is a salary position worth it? Yes, a salary position is often worth it. It may come with greater responsibilities and lower take-home pay, but the perks associated with a salaried position (employer-sponsored health insurance, retirement assistance, PTO, etc.) are attractive enough to convince most employees that it’s worth it.

• What are the disadvantages of being paid a salary instead of an hourly rate? Most salaried positions are not eligible for overtime pay, so if you’re consistently working more than 40 hours a week, you won’t see any extra compensation for it.

  Additionally, employers factor in the cost of your benefits into your compensation package, so your take-home pay might be lower than an hourly employee performing the same job.

  Other possible disadvantages, like having less flexibility or more responsibility, are employer-dependent.

• Is salary based on 40 hours? Yes, a salaried employee is paid for 40 hours a week, regardless of how many hours they actually work. If an employee is exempt from FLSA and overtime laws, then it is perfectly legal to work up to 60 hours as a salaried employee.

  Salaried employees rarely have to “clock in” as their hourly counterparts do, so exact work hours are rarely known. This becomes especially true for remote workers and those who complete some of their responsibilities at home when they’re officially “off the clock.”

• What are the advantages of being paid a salary?

  One of the big advantages of being paid a salary rather than hourly is that you know how much you will receive each pay period, which makes it easier to figure out your personal and household budget.

  Another benefit is that you don’t have to keep track of your hours, and you’re assigned tasks to do and are typically allowed as much time as you need to complete them. In addition, salaried employees can earn additional benefits that include insurance, retirement plans, paid vacations, and more.

  When someone is paid a salary, they are often educated and skilled in their particular field. In many of these situations, they’re in a position to advance their career within a company or outside of one.

  While the fact that they earn a salary rather than hourly pay doesn’t have anything to do with their ability to advance, salary-based positions are more likely to have a future where promotions are involved.

• Is salary before or after taxes?

  Many people ask if a salary offer is the amount you make before taxes (your gross pay) or the amount you take home (your net pay), and the answer is that it’s your gross pay.

  If you are offered a job and told that the salary will be $50,000 a year, then this is the amount of money you will gross, which is the money you make before your taxes are subtracted. You will take home your net amount, which will be significantly less than $50,000 in most situations.

• Are taxes different for salary vs. hourly?

  Taxes are not computed differently for salaried employees than they are for hourly employees. In the United States, your tax rate is based on the amount of financial compensation you receive, not on how you receive that compensation.

• How often do you get paid when you’re on a salary?

  How often you get paid when you earn a salary depends on your agreement with your employer. It is more common for salaried employees to receive paychecks bi-weekly or monthly, whereas most hourly employees receive weekly paychecks, but this all depends on the company you work for.

Final Thoughts

The choice between hourly and salaried positions varies greatly, and which one you choose depends solely on your lifestyle, needs, and preferences. Be sure you understand the specific company you’re applying for, what the specific job entails, how exactly you will be paid. See if you can speak with other employees at the company who can give you insight into how it all works internally.

Author

Caitlin Mazur

Caitlin Mazur is a freelance writer at Zippia. Caitlin is passionate about helping Zippia’s readers land the jobs of their dreams by offering content that discusses job-seeking advice based on experience and extensive research. Caitlin holds a degree in English from Saint Joseph’s University in Philadelphia, PA.