Salary VS Hourly Pay (Which Is Best?)

Last updated on December 20, 2023

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Salary VS Hourly Pay

When it comes to how you get paid, there are two main methods: hourly pay and salaried pay. Let’s break down the differences.

Hourly pay is pretty straightforward. It’s the amount you get paid for each hour you work.

If you’re on hourly pay, here’s a perk: when you work more than the regular hours in a week (usually 40 hours), you get overtime pay.

That’s your base wage plus an extra 50%. Sweet, right?

On the other hand, salaried pay is a fixed amount you get, no matter how many hours you work.

Whether it’s a 40-hour week or an extra hour here and there, your salary stays the same. But here’s the catch: salaried employees aren’t eligible for overtime pay.

Now, who decides which pay structure you fall under? Enter the Fair Labor Standards Act (FLSA). This act lays down the rules on who gets what.

To be considered exempt (meaning you’re not eligible for overtime pay), a few criteria need to be met.

First, you generally need to earn at least $684 per week or $35,568 per year.

Second, you should be on a salary basis.

Third, your job should involve certain duties where you use your judgment and discretion at least 50% of the time. Think managerial roles—they often fall under this category.

The thing is, you can’t negotiate your way into being exempt or nonexempt. Your job category is determined by the duties you perform, not your job title.

Key points to remember:

Salaried Employees: You get a fixed wage, but you’ve got to keep up with your responsibilities, even if it means putting in extra hours without extra pay.
Hourly Employees: You get paid extra (time and a half) for every hour over 40 in a week. Nice bonus for those extra hours!
FLSA Rules: It’s the Fair Labor Standards Act that decides whether you’re on salary or hourly pay.
Exempt Employees: If you’re exempt, sorry, no overtime for you.

Salary

Let’s talk about how salaries actually work. When you’re on a salary, your paycheck is consistent—it’s the same amount every time it hits your account. Think of it as your regular wage for the work you do throughout the year.

This amount is part of your employment terms, and it remains fixed unless there’s a renegotiation or change in your job terms.

However, there’s a catch. While a salary provides stability, it also comes with responsibilities. As a salaried employee, you’ve got specific tasks and duties that need to be tackled, even if it means putting in extra hours or working on weekends.

This can blur the line between work and personal time, making it a bit challenging to strike that balance.

Now, here’s the thing that makes a salary appealing: it brings a sense of security.

Unlike nonexempt workers whose hours can easily be adjusted by employers, renegotiating a salary is a more involved process. It’s like a mutual agreement that involves discussions and considerations from both sides.

So, while a salary provides consistency and a certain level of assurance, it does come with its own set of demands and expectations. Balancing those responsibilities with personal time becomes crucial in making the most out of a salaried position.

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Hourly Pay

When you’re paid hourly, every hour you work gets counted. It’s as simple as that. You put in the time, you get paid for it. Here’s the interesting bit: if your employer needs you to work more hours, they’ve got to pay you more for that time.

Legally, overtime pay kicks in when you go beyond the standard work hours (usually 40 hours a week), and that’s at a rate of time and a half. Sometimes, for holidays, some employers might even shell out double the usual pay.

However, this isn’t mandatory unless it’s specified in your job contract.

Now, here’s a perk: in certain well-paying fields that offer a lot of overtime, hourly employees can bring home more than those on a fixed salary. It’s like an opportunity to earn more based on the time you put in.

But let’s talk lifestyle. Hourly pay can make it easier to draw a line between work and personal life. Once your work hours are up, you’re free to focus on family, hobbies, or even take up a second job if you want.

However, there’s a flip side. Hourly employees might feel the heat first when laws change or when a company faces tough times.

It’s easier for employers to cut back hours for hourly employees rather than eliminate entire salaried positions. If you’re part of a union, though, there might be some protection against these risks.

Healthcare coverage can also be affected. Businesses with 50 or more employees are obliged to offer healthcare to full-time employees, usually defined as those working 30 or more hours.

Some businesses might limit hourly employees’ hours to keep them under this threshold and dodge the healthcare mandate.

So, while hourly pay offers flexibility and potential for extra earnings, it also comes with vulnerabilities that salaried positions might not face. It’s a trade-off between flexibility and security in certain aspects of work and life.

Salary or Hourly Pay?

Let’s break down the major differences between getting paid a salary and being paid hourly:

Salary Characteristics

Guaranteed weekly wage: You get a fixed amount regularly, regardless of the hours worked.
No overtime pay: Even if you work beyond standard hours, there’s no extra pay for those additional hours.
Employer-sponsored benefits: Often includes perks like healthcare coverage, paid vacation, and sick days.
Blurred work-life boundaries: It can be challenging to draw a line between work and personal time.
Sense of job security: There’s a feeling of stability in your job.

Hourly Pay Characteristics

Pay based on hours worked: Your pay varies depending on the number of hours you put in.
Overtime pay: If you exceed the typical work hours (usually 40 hours), you’re entitled to time and a half for those extra hours.
Personal responsibility for benefits: You might need to manage your health insurance, and you’re not paid when you’re not working.
Easier separation of work and personal life: Once you’re off the clock, work is left behind.
Potential vulnerability: Employers can adjust your hours more easily if needed.

These differences highlight the trade-offs between the two pay structures: consistency and benefits versus flexibility and potential for additional earnings. Your choice might depend on your priorities regarding job security, work-life balance, and financial stability.

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FAQ

What‘s an Implicit Cost?

An implicit cost in business refers to the expenditure a company makes on resources it already possesses. Think of it as a voluntary spend.

For instance, salaries and wages paid to employees fall under implicit costs because business owners have the choice to handle the work themselves instead of paying others to do it.

How Much Does the Average American Worker Earn?

According to the U.S. Bureau of Labor Statistics, the median income for American workers in the third quarter of 2023 was $1,118 per week. This figure encompasses both wage earners and salaried employees.

However, there’s a disparity based on gender. For women, the median income dropped to $1,005, while for men, it increased to $1,208. It’s important to note that half of all workers earned more than this median and half earned less.

How Many Americans Have No Earned Income at All?

As of October 2023, the national unemployment rate stood at 3.9%. It’s noteworthy that in 26 states, the rate was actually lower than this national average.

Final Thoughts

When it comes to being an hourly or salaried employee, each has its own set of advantages and drawbacks. Salaried employees generally experience more perks, including paid vacation and sick days, employer-sponsored retirement accounts, and other benefits.

On the flip side, hourly workers often miss out on compensated time off from their employers and might have to handle their healthcare arrangements. However, they do enjoy more freedom and flexibility, sometimes even having the autonomy to set their own work hours.

References

This Is the Difference Between a Salary and Hourly Pay