Salaried vs. Hourly: Why It Matters How You’re Paid

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Compensation comes in many forms, like benefits, bonuses, and stock options. But the two most common ways employers pay workers is by issuing an hourly wage or setting a salary.  

Read: What To Do If You Owe Back Taxes to the IRS

Although salaries and hourly wages are straightforward ways to get paid, there’s much to consider when weighing their advantages and disadvantages.

Multiple factors affect your bottom line when considering salary vs. hourly pay, and they matter in the long run when comparing job offers. This article delves into what each category entails and what to expect when considering salary vs. hourly pay.

Hourly Wages vs. Salaries

How employers compensate their employees depends on factors like industry standards, location, and job nature. Knowing how salary vs. hourly pay ties into how much you make and if state laws affect them makes a difference. It helps you make better financial decisions and manage your time more efficiently based on your employer’s payment method.

Salary

A salary is a fixed and recurring payment employers pay their workers, usually in bi-weekly or monthly installments over a year. Employers base the amount you receive on a fraction of the total salary.  

The government sets a minimum threshold for what counts as a salary. According to the Department of Labor, an employer must pay a minimum of $684 per week for the amount to qualify. This number excludes teachers, medical, outside sales and law employees.

Employers can use regular bonuses or methods like commissions to cover up to 10% of the standard salary. If one year passes and the employer does not pay the total salary, they have one more payment cycle to meet the required total.

Hourly Wage

An hourly wage is an amount that an employer pays an employee per hour of work. Unlike a salary, you do not have a fixed annual income, and the amount you receive may vary between paychecks.

The minimum hourly wage in the United States, as set by the federal government, is $7.25 per hour. Since some states also have minimum wage requirements, the U.S. Department of Labor maintains that employees receive the higher of the two minimum wages.

Advantages and Disadvantages of Salaries and Hourly Wages

Take a look at some of the pros and cons of each.

Salary Pros

Having a fixed salary comes with perks and disadvantages. In terms of advantages, you receive a regular paycheck with a fixed amount that usually doesn’t change. Sometimes, the amount you make with a salary is difficult to accomplish with an hourly wage.

Besides this fixed amount, you may also have paid time off, sick leaves, and other benefits that keep this amount stable when circumstances prevent you from going to work.

With a salary, you can better plan your finances and make budgeting decisions based on the fixed amount you receive.

Salary Cons

One of the main disadvantages of receiving a salary is that you don’t get overtime and holiday pay, with some exceptions. If your employer needs you to work extra hours, you still get the same amount you usually do every pay period.

Another con when considering a salary is that some employer benefits, like health insurance, are part of the total salary figure. So, while your overall salary is $70,000 annually, you may receive less in hand due to the insurance deductions.  

Hourly Pros

With an hourly wage, you can receive overtime pay, which is your regular pay rate x 1.5 times the number of overtime hours you worked.

The federal government covers non-exempt employees through the Fair Labor Standards Act by mandating employers to pay overtime wages for hourly employees. Those covered by the act must receive overtime pay for every hour worked beyond the standard 40 hours per week.  

If your hourly rate is $15.00 and you worked 5 hours of overtime a month, you get $112.50 in overtime pay.

Another advantage to an hourly wage is that you won’t have to spend extra time working at home. Since you receive payment per hour, employers are less likely to ask you to perform additional duties outside your work hours, which is not always the case with salaried employees.

Hourly Cons

Hourly pay comes with some disadvantages. The most glaring is that your paycheck changes depending on your work hours. You don’t get paid if you call in sick, have an emergency or your employer decreases your hours.

Another disadvantage of hourly pay is that employers rarely give hourly employees bonuses, benefits, paid vacation time and other perks.

Finally, working with an hourly wage means you need to plan your time more efficiently and make up for sick days or other issues. Since these affect your final paycheck, planning ahead is essential and affects your bottom line.

Salary vs. Hourly Pay: Which Is Better?

When you want to determine what pay style works best for you, consider the pros and cons of each and the limitations of your lifestyle. The best choice for you may not work for others, especially if you have obligations.

If you prefer the predictability of a recurring, fixed payment and have financial responsibilities, a salary may be the best option for you.

However, if you require flexibility and have no problem working overtime for extra income, an hourly wage may be the better option.

Remember that it ultimately boils down to the specifics of each job when comparing salary vs. hourly wage.

Wrapping Up

Some salaried jobs have little flexibility and require you to work long hours without overtime, even when your shift technically ends. On the other hand, an hourly wage may offer more financial perks and less work when your shift ends, freeing time for you to take on hobbies and spend with people you care for.

Remember that regardless of how you get paid, the most essential factor is whether the method aligns with your needs and lifestyle. There is no right or wrong way to receive compensation if you and your employer are on the same page.

Considering the pros and cons of salary vs. hourly pay helps you make the best decisions for your long and short-term financial goals.

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