Understanding the differences between salary vs. hourly pay can help you decide whether to take a promotion or apply for a new job. While there is important distinction between the two employment classifications, one is not necessarily better than the other. Several advantages and disadvantages of hourly and salary positions should be considered before making a career move.
In short, a salaried job provides a fixed payment that’s often indicated as an annual amount, such as $30,000 or $50,000. Salaried employees are paid a regular, consistent amount based on their pay schedule — equal to their annual sum. With a salary, you’re not typically paid based on the number of hours you work. On the other hand, hourly positions pay a certain amount for each hour you work, such as $15 per hour. An hourly worker can be paid weekly, biweekly, or monthly just like a salaried employee.
Although salary vs. hourly parameters may seem straightforward, there are exceptions and exemptions based on federal labor law. It’s important to understand the key differences and exceptions to determine if hourly or salary is better for your financial situation. Review our guide to learn more about the salary vs. hourly definition and easy to read charts of the pros and cons of each.
Salary vs. Hourly
Hourly employees are paid for every hour they work, which must equal at least the federal minimum wage. Hourly employees are also entitled to overtime pay at one-and-a-half their normal rate for time worked beyond 40 hours in a workweek — unless their position meets an exemption.
Salaried employees, however, are paid a predetermined amount each pay period. Their pay is not typically dependent on the number of hours and days they work. Salaried employees must receive at least $455 weekly, unless they meet an exception such as being a teacher, salesperson, or employee practicing law or medicine.
What Is a Salaried Employee?
A salaried individual gets paid a regular, predetermined amount based on their annual sum, such as $45,000. For salaried employees, the pay period can be weekly or anything less frequent, such as biweekly or monthly.
Salaried positions may include roles like managerial jobs along with professional roles such as accountants, engineers, and marketing professionals. Often times, salaried roles accompany a benefits package inclusive of retirement matching in a 401k or 403b account, paid time off (including sick time and vacation time) and short term disability. Benefit packages vary from position to position and company to company.
While you can receive overtime as a salaried employee, it’s typically an exception, not a common occurrence. You may be entitled to overtime by U.S. law if you meet certain requirements. For a full description of salary and overtime exemptions, visit the U.S. Department of Labor website.
In most cases, an employment contract will specify if a salaried employee is entitled to overtime. The contract might state, for example, that you will be paid a premium amount after working over 50 hours in a workweek. Based on your contract (not labor law), you have legal rights to that overtime.
What Is an Hourly Employee?
Hourly workers — from cashiers and nurse aids to administrative assistants and lifeguards — are paid based on the specific number of hours they work. They must be paid the federal minimum wage, although some states carry higher minimum wage rates.
Hourly employees are entitled to one-and-a-half times their normal rate for hours worked over 40 in a workweek. In general, hourly employees are in charge of clocking, tracking, and reporting their own work hours. Like salaried employees, they can also be paid out weekly, or on a less frequent schedule, such as biweekly or monthly.
For worker protection, no employment contract can invalidate state, local, or federal law. For instance, if a contract states an hourly employee won’t receive overtime after 40 hours in a workweek, it is not valid and won’t stand in court. A contract for an hourly worker, however, can add additional protections, such as providing vacation pay, sick leave, and special holiday pay.
How to Calculate Pay for Salary vs. Hourly
Generally speaking, a salary is predetermined. If you agree to work for a $45,000 salary, you will earn a total of $45,000 by the end of a full work year. A salaried position does usually not provide overtime pay, but it can include bonuses and commissions, based on the type of position.
If Julia is paid a salary of $45,000 with no bonuses or commissions, and she receives biweekly paychecks (26 paychecks in a year), her biweekly check pre-tax will be $1,730.77.
As an hourly employee, though, you need to look at your hourly rate and calculate how much you expect to earn for the year. For example, if Julio makes $17.50 per hour, and he works 35 hours a week for 52 weeks a year (including paid time off), he’ll make $31,850 in a year. If Julio is paid biweekly, his check pre-tax will be $1,225.
If a position is not benefit-eligible for paid time off, you may only work 48 or 50 weeks in a year. You’ll need to calculate fewer weeks of work into your estimated annual earnings. In addition, be sure to factor in any overtime hours you expect. Per the federal labor law, hours worked over 40 hours in a workweek must be paid at one-and-a-half times your regular hourly amount. If Julio makes $17.50 per hour, his overtime rate would be $26.25 per hour. If he assumes that he’ll work 40 hours of overtime in a year, he would make an additional $1,050 for the year.
Exempt vs. Non-Exempt
Exempt employees are not subject to the overtime and/or minimum wage provisions of the Fair Labor Standards Act (FLSA). For some positions, an individual could be exempt from overtime provisions or minimum wage provisions or both. For instance, if you’re a salaried manager or teacher, you may be exempt from both overtime and minimum wage. On the other hand, if you’re a salesperson or a long-haul semi-truck driver, you might only be exempt from overtime provisions but be required to be paid minimum wage. Certain professions and types of work may meet one exempt status but not the other.
In contrast, non-exempt employees are entitled to both overtime and minimum wage provisions. Put more simply: if you’re non-exempt, you’re due overtime and minimum wage by law.
Advantages and Disadvantages of Salary vs. Hourly
While some people might be eager to jump at the opportunity to be salaried, there are pros and cons of both hourly and salaried positions. Review the advantages and disadvantages of each below.
Salaried Employee Advantages and Disadvantages
Pros of being a salaried employee:
- Fixed regular paycheck gives you a peace of mind
- May offer a more flexible schedule
- May allow opportunity to work less than 40 hours a week
- Ability to miss work without being docked in pay
Cons of being a salaried employee:
- May require you to be available during “off” hours
- Usually does not pay for overtime hours
- May require you to work more hours than an hourly position
Hourly Employee Advantages and Disadvantages
Pros of being an hourly employee:
- Ability to earn overtime at 1.5 times your regular hourly rate
- Will be paid at least the minimum wage for every hour worked
- Can “work ahead” and take less vacation time
- Offers flexibility for choosing work hours
Cons of being an hourly employee:
- More difficult to count on an income
- If you miss hours or a shift, you likely won’t be paid for that time
- Can miss out on wages if hours or shifts are docked
- Typically a less flexible work schedule
In the end, there’s no straightforward answer on whether a salaried role is better than an hourly one. Several factors impact each position at each company within each industry. While salaried individuals may feel assurance with a fixed annual amount, hourly employees benefit from overtime pay.
Before accepting a new job or a promotion, be sure to review the employment terms carefully. Above all, make sure you put yourself in the best financial position both now and in the future.