- What is a salaried employee?
- What is an hourly employee?
- Advantages of salary compensation
- Disadvantages of salary compensation
- Advantages of hourly compensation
- Disadvantages of hourly compensation
- Choosing between salary and hourly
Salary versus hourly compensation can become a major deciding factor of whether or not you accept a job. Just as you take the role, responsibilities and company culture into consideration, you likely are also considering the way you will be paid. In this article, you can learn about the primary advantages and disadvantages of both hourly and salary compensation to help you evaluate whether you will be satisfied with the type of pay being offered for a position.
What is a salaried employee?
A salaried employee is one who is paid a predetermined amount based on their annual compensation. They may be paid each week, biweekly or monthly, and their annual compensation will be divided by the number of pay periods in the year. Salaried employees are generally exempt employees, which means they’re exempt from overtime pay. For this reason, employers typically don’t keep track of the hours they work. In order to be considered exempt, though, they must earn at least $455 per week and work in an executive, professional or administrative role.
What is an hourly employee?
Hourly employees are paid based on the number of hours they work and must receive, at a minimum, the federal minimum wage. Because hourly employees are considered non-exempt employees under the Fair Labor Standards guidelines, when they work over 40 hours, they are usually entitled to one-and-a-half times their normal rate. There are, however, certain occupations that are exempt from overtime pay, even if they’re paid on an hourly basis. Hourly employees are usually in charge of tracking their own work hours and, like salaried employees, can be paid as often as every week or less frequently, such as biweekly or monthly.
Advantages of salary compensation
There are a number of advantages that accompany being a salaried employee, including:
While some employers do pay benefits for hourly employees who work full-time, you’re more likely to have them if you’re a salaried employee. Salaried jobs are also more likely to include other benefits like 401(k) contributions, paid time off and sick leave.
Employees who are compensated on a salary basis are more likely to have regular schedules than hourly employees. This can make it easier to schedule things like childcare, doctor’s appointments and other activities outside of the office.
Salaried employees tend to have more flexibility in their schedules. It’s generally easier for them to leave for lunch or an appointment during the day or even work from home for one or two days if necessary. Any breaks you take are paid by the employer.
Employees who are paid on a salary basis tend to earn a higher overall income. Salaried employees tend to include roles like managers, engineers, accountants and marketing professionals.
Disadvantages of salary compensation
There are some disadvantages to salary compensation, including:
Not eligible for overtime
This is the most noteworthy disadvantage of being a salaried employee. Unless the employer chooses to compensate for overtime work, salaried employees are not eligible for overtime pay for working nights or weekends. Because of the enormous responsibility of some salaried positions, working over 40 hours per week is common and necessary to complete the responsibilities for the role.
In some organizations, office culture may encourage longer hours to compete against coworkers for advancement opportunities. Additionally, the roles that salaried employees hold might tend to be more stressful due to the nature of their responsibilities or industry.
Advantages of hourly compensation
There are several benefits to being paid on an hourly basis:
The opportunity for overtime pay is considered to be the biggest benefit that employees receive from being paid hourly. If you work more than 40 hours in a week, you can receive time-and-a-half wages for the time you work beyond 40 hours. For example, if you are paid $12 per hour but work overtime, you will receive $18 for every hour you work during that week past your standard 40 hours.
Guaranteed pay for your work
Unlike salaried employees, who may work over 40 hours without receiving additional compensation, hourly employees are guaranteed to receive a certain dollar amount for every hour they work, and possibly more if they work over 40 hours in a week.
Double pay for holiday work
While this doesn’t apply for all companies, many hourly employees are paid double their hourly rate for working on holidays. For example, if you are usually paid $12 an hour, and if you work a shift on Thanksgiving, you may be paid $24 an hour by the employer.
Possibility for extra compensation
Unlike salaried employees who are compensated based on the annual amount, hourly employees have the option of increasing their income by requesting additional hours. Because many employers want to award hours to eager, ambitious employees, you could significantly increase your compensation by taking on extra work.
Disadvantages of hourly compensation
There are some disadvantages to hourly compensation that you should consider, including:
Disallowing overtime work
Many employers don’t allow hourly employees to work over 40 hours each week in order to keep costs low. This can present a challenge for ambitious employees who want to increase their income.
No guarantee of hours
Depending on the type of business, hourly employees have no guarantee of receiving 40 hours of work each week. For example, if you work for a retail company and business is slow, the manager may choose to send you home in order to cut their costs, which in turn, would reduce your hours.
While some hourly employees do enjoy full-time benefits, most do not. This means that hourly employees generally don’t have access to insurance plans, retirement plans and bonuses that are usually given to hourly employees.
Choosing between salary and hourly
If you are evaluating whether to accept a job based on whether they pay hourly or salary, here are a few things you can consider:
Number of hours
Before accepting a position, you should ask what the hours will be like and if additional duties will be expected of you. If a salary position requires a lot of extra hours beyond a 40-hour workweek, it may or may not be the job for you.
Whether benefits are available
Another thing you should confirm is whether the position comes with benefits, such as health insurance, retirement contributions or paid time off. Most hourly employees don’t receive benefits, although some do. Because health insurance can be a costly expense out-of-pocket, whether or not the employer will provide benefits is an important consideration.
Where you are in life
If you’re just starting in your career, hourly may work well. Or, if you are open to taking on more work, the option of overtime pay can be appealing. If you are further along in your career or you are balancing work and family, an hourly job might become problematic, especially if it comes with irregular hours and no benefits.