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An Overview of Salary and Hourly Pay
Work-related compensation can take many different forms. Salaries and hourly wages are two of the most popular forms of compensation. A salary is a fixed sum of money that is paid regardless of how many hours you work.
Employees who receive a salary are not eligible for overtime compensation. Hourly pay is the rate paid for each hour of employment. Employees who are paid per hour are entitled to overtime pay equal to their base wage plus 50%.
To be declared exempt, an employee must earn at least $684 per week or $35,568 per year, be salaried, and perform exempt responsibilities that require discretion and independent judgment at least 50% of the time.
You’re presumably exempt if you take on managerial responsibilities. You can be paid a salary, which means your employer does not have to pay you extra earnings regardless of how many hours you work.
KEY TAKEAWAYS
- Salaried employees are paid a set wage and may work extra hours without compensation.
- Employees who work more than 40 hours per week must be paid time and a half.
- The Fair Labor Standards Act governs whether US employees can be paid a salary or must be paid hourly.
- Exempt employees are not eligible for overtime.
Salary
A salary is a fixed wage, typically expressed as a monthly or annual paycheck. This means that when you earn a wage, your cheque always contains the same amount. An annual pay is a term of employment that specifies how much you will be paid for as long as you stay in the same work or until the conditions are renegotiated.
It represents an implicit expense for your employer. Salaried employees are paid at a fixed rate, however there are several drawbacks to this style of compensation.
If you are paid a wage, you have specified goals, duties, and/or tasks that must be accomplished or completed, even if it means working longer hours and weekends without additional remuneration.
Working longer hours (without pay) may make it more difficult to divide work and personal time and create a work-life balance. And it can result in increased stress and pressure to achieve your tasks, even if it means sacrificing your own time.
A salary provides an inherent sense of stability. Employers can simply reduce the hours of a nonexempt worker, but renegotiating a salary is more challenging.
Hourly Pay
If you work on an hourly basis, you will be compensated for all of your hours. If your employer wants more of your time, they will have to pay you more. Legal overtime is time and a half, however some businesses may pay double time on holidays.
Overtime hours and remuneration are typically included of an employment contract. However, keep in mind that awarding overtime is at the discretion of the employer.
Working hourly means you could make more than if you earned the same official pay on a salaried basis, especially if you work in a well-paying profession with plenty of possible overtime. There is also an impact on lifestyle.
Hourly employees may find it easier to separate home and work. When their workday is done, they can devote their time to family, hobbies, or a second employment.
However, being paid hourly increases your vulnerability. When regulations change or their organization experiences difficulties, hourly employees are generally the first to feel the impact.
It is easier for an employer to reduce your hours until business improves than to terminate an entire salaried employment. Hourly employees that are unionized may be protected from some of these dangers.
There may also be impacts on eligibility for healthcare coverage. The Affordable Care Act (ACA) mandates businesses with 50 or more employees to provide healthcare to full-time employees, who are defined as those who work 30 hours or more per week. To evade this obligation, several organizations limit their hourly staff to fewer than 30 hours.
The Fair Labor Standards Act (FLSA) governs the type of payment that an employee receives. The FLSA prohibits you from negotiating whether your position is exempt or nonexempt. Your work category is determined by the duties you perform, not your job title.
Key Differences Between Salary and Hourly Pay:
| Salary | Hourly Pay |
| Guaranteed weekly wage | Pay is based on hours worked |
| No overtime pay | Overtime pay is time and a half for every hour worked over 40 hours |
| Employer-sponsored benefits include healthcare coverage, paid vacation, and sick days | Employees may be responsible for their own health insurance and are not paid unless they work |
| More difficult to distinguish between work and personal time | Can leave work behind when not on the job |
| Salary provides a sense of job security | Employers can easily reduce your hours if they want to |
What is an Implicit Cost?
An implicit cost is money spent by a company or firm on existing resources. It is more or less a voluntary expense. Salaries and salaries paid to employees are considered implied since business owners can choose to undertake the work themselves rather than pay others to do it.
How Much Does The Average American Worker Earn?
According to the Bureau of Labor Statistics (BLS), the median weekly salary for American workers in the third quarter of 2023 was $1,118. This covers both hourly and paid staff. The figure fell to $1,005 for women. It rose to $1,208 for men. Half of all workers earned more than the median, while half earned less.
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How Many Americans Have No Earned Income At All?
The national unemployment rate was 3.7% in November 2023. However, 19 states had rates lower than this.
The Bottom Line
There are advantages and disadvantages to working for an hourly rate vs a salary. However, salaried employees generally receive greater benefits, such as paid vacation and sick leave, retirement funds, and other employer-sponsored benefits.
Hourly workers are rarely compensated in the form of paid leave by the companies that employ them, and they may be liable for their own healthcare. However, hourly employees have greater liberty and may even be able to determine their own hours.
Frequently Asked Questions
How to calculate hourly rate from salary?
The simplest way to get an hourly rate from a salary is to divide your yearly income by the number of agreed-upon hours you will work each year.
For example, suppose you earn €42,500 per year and are contracted to work 35 hours per week for 52 weeks, or 1,820 hours. Your hourly rate would be €23.35, calculated as €42,500 divided by 1,820.
Is annual salary the same as annual income?
Annual pay and annual income have different meanings. An annual wage is a figure you’ll see when applying for a job or signing your employment contract. It is a monetary amount that covers your work for the entire year.
Your annual income is the amount of money you have available to spend on living expenses after deducting taxes and other expenses from your wage, as well as any additional income sources. This could be perks, savings account interest, or supplementary income from rental properties or freelance employment.