People on the hunt for full-time jobs may find themselves asking this question — what’s the difference between an hourly and a salaried wage? Salaried wages are typically offered for full-time employees at senior levels, making hourly wages much more common. Both of these wage types have pros and cons, which can help you decide which will best suit your needs.
What Is a Salaried Employee?
A salaried employee is an employee who has fixed pay, regardless of time worked during each pay period. Also referred to as exempt employees, salaried employees are paid the same amount in every paycheck regardless of how many hours they work. Salaried employees also typically receive a benefits package from the company they work with. These factors make being a salaried employee incredibly desirable. However, as noted above, salary is typically extended to more senior-level employees or positions, rather than entry-level.
The Benefits of Salary
The benefits of being on salary include:
- Less reliant on a set schedule: Because salaried employees are paid the same rate regardless of hours, they are less reliant on having a certain number of hours scheduled for them to work in each pay period. Depending on company policies, salaried employees may have more flexibility when it comes to leaving early for things like appointments, or working from home.
- Stable paychecks: Salaried employees know exactly what their paychecks will be each pay period. They don’t have to rely on time tracking to figure out their wage the way hourly employees do. This can make it easier to make a personal budget when you know exactly what to expect.
- Full benefits: Salaried employees are also typically offered a comprehensive benefits package on top of their salary. This includes health insurance, dental and vision, and retirement.
- Higher PTO accrual: Salaried employees also tend to earn paid time off faster than hourly employees. PTO is typically earned based on days or months worked, rather than hours. So even if a salaried employee only worked 5 hours a day, they would still earn their full PTO credits.
It should be noted that both salary and hourly employees are taxed the same — based on their pay scale. Your tax withdrawals may vary based on the programs you’re enrolled in as well as how high or low your pay rate is, but your position as a salaried or hourly employee has no bearing on how your taxes are calculated.
The Drawbacks of Salary
While the benefits of being a salaried employee are very attractive, there are certain drawbacks. These can include:
- Increased overtime: The normal workweek is 40 hours, but salaried employees could find themselves working closer to 50 or 60 hours, depending on their job demands. Salaried employees also may not be able to refuse to work overtime the way hourly employees can, as it could violate their contract.
- Ineligible for Situational Pay Rates: In addition to being more likely to work overtime, salaried employees are not eligible for situational pay raises. This means that they are not automatically compensated a higher rate for overtime pay, as hourly employees are. Salaried employees also don’t normally receive holiday or weekend pay rates.
- Always On-Call: In some cases, salaried employees are expected to always be “on-call” or available for correspondence. This is largely dependent on the company and industry you work in, however, it can be a serious obstacle for your personal life if the expectations are there.
What Is an Hourly Employee?
An hourly employee is someone who gets paid depending on the hours they work in a week. Hourly employees can be part-time or full-time, whereas salaried employees are virtually always full-time. Hourly pay is common for entry-level positions but can be offered at any level. Whether or not hourly employees receive benefits depends on the company they work for, as well as their status as either full-time or part-time employees.
The Benefits of Hourly
The benefits of being an hourly employee include:
- Eligible for Situational Pay Adjustments: Unlike salaried employees, hourly employees are typically required to receive overtime pay (whenever they work more than 40 hours in one week), as well as holiday pay, and potentially other special considerations like weekend pay. This can make a big difference in earnings, especially in fields like health care, where working holidays or weekends at increased pay rates is common
- Work-life balance: Hourly employees may find it easier to separate work and home life. They are not typically expected to be accessible or to put in unplanned time at work the way salaried employees can be. Often, hourly employees get the luxury of leaving their work at work at a set time.
- Scalable Paychecks: Because hourly employees are paid based on the hours they work, the employee can earn more or less based on their needs for a given pay period. They can take on more hours if they have a big bill coming up one week, and then take fewer the next. This is a kind of flexibility salaried employees don’t have.
The Drawbacks of Hourly
There are also drawbacks to being an hourly employee. These include:
- Less Pay Security: Hourly employees’ paychecks are entirely dependent on their weekly hours. If they aren’t in charge of their own scheduling, then they might see massive fluctuations in their earning power from week to week.
- Less Job Security: Hourly employees are also more likely to get laid off than salaried employees. Especially if you are a part-time hourly employee, this is typically one of the least stable positions to be in.
- Access to Benefits: The benefits available to hourly employees are entirely dependent on the company they work for, and whether they are scheduled for full-time hours consistently enough to be eligible for benefits. Some full-time hourly employees can enjoy many of the same benefits as salaried employees, but this is not always the case.
A common defining factor between salary workers and hourly workers is experience. More entry-level jobs are at an hourly rate, while more senior levels jobs are on salary. Hourly pay is more accessible to more people because it starts at entry-level. But this is by no means a determinator of skill or value.
Is One Better Than the Other?
Deciding whether being on a salary or hourly pay rate is better comes down to your priorities and lifestyle. Some people prefer to be on an hourly rate because they work in an industry where working holidays at a higher pay rate is common. Some people prefer to be on salary because their lifestyle suits the structure of knowing exactly how much you’re being paid. Neither is truly better or worse than the other.
When applying for jobs, ask yourself which pay scale would best suit your needs before you choose between a salaried or hourly position. Being able to maintain a happy quality of life is the most important thing, no matter which pay scale you fall on.