Hourly vs Salary – Which One is Better?

4 min read

hourly vs salary

The great debate of hourly vs salary has been raging on. I distinctly remember trying to figure out the pros and cons of either. I also wanted to determine which one has better for me. There are tons of jobs out there that are either hourly or salary. It’s no wonder then you are trying to figure out which one is better. You have come to the right place!

Although there are a few differences between hourly vs. salary, one of the biggest differences is the eligibility for overtime pay. These methods of compensation aren’t created equal, but they have their similarities. In this article, we will explore the differences between hourly and salary. Hopefully, by the end, you can figure out which one is better for you.

Hourly vs Salary pay

As a quick summary, According to the Fair Labor Standards Act (FLSA), “covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek at a rate not less than one and one-half times the regular rate of pay. There is no limit on the number of hours employees 16 years or older may work in any workweek”

On the other hand, salaried employees are not eligible for the FLSA overtime pay and rate. Salaried employees are paid a fixed guaranteed pay based on hours worked weekly. There are also are no limits on how many hours this employee may work in any workweek. Overtime hours are typically not compensated.

What is a salaried employee?

Salaried employees have a set minimum of annual compensation that they get paid. The compensation amount is typically based on a set amount of hours each week. Within the United States, this typically means 40 hours a week. The salary is typically not affected by fluctuations in hours worked.

For example, let’s say an employee earns a $40,000 per year salary. They will still earn $40,000 even if they work 39 hours or 43 hours in a week. Their pay schedule is typically paid weekly, bi-weekly, or monthly. So for this example, if an employee earns $40,000 and is paid weekly, each paycheck would be $769 before deductions.

This is the first step in determining whether hourly vs salary is the best fit for you.

hourly vs salary

Advantages of a salaried employee

From an employer’s perspective, having a salaried employee means that they are typically not paid for any overtime. This is because their compensation is at a flat rate. The opposite is also true. If they work less than 40 hours in a week, they will also get paid the same. Processing payroll is also made easier because they are no fluctuations in pay.

From the employee’s perspective, having a salary means that you have a guaranteed flat-rate compensation. If you work less than 40 hours in any given week, you still are in the same. It also makes it easier to budget to do finances since your paychecks are almost always the same.

Disadvantages of a salaried employee

Just like anything in life, there’s always a flip side to the coin. Again, from an employer’s perspective, having a salaried employee means there’s a chance they will work less than 40 hours in a week. This might not be a problem if they have high productivity. However, unless the employer tracks hours worked, there is still a chance.

From the employee’s perspective, there is also a chance that you will end up working more than 40 hours in a week. When that happens, and you are not eligible for overtime, and you will work for free. This isn’t always the case especially when it comes to Long projects. However, it’s something to keep in mind. Salaried employees typically don’t get overtime. They are just paid to get the job done, no matter how long it takes.

What is an hourly employee?

An hourly employee is paid at a certain rate per hour of work. Hourly rate employees are typically eligible for overtime. Overtime, depending on the state you operate in, is time and a half of any hours Beyond 40 hours in a week. Hourly employees I also sometimes not guaranteed a full 40 hour week.

Compensation to an hourly employee is not steady and consistent like a salaried employee. Since their weekly hours may fluctuate, their compensation might vary as well.

For example, an hourly employee may earn $17 per hour. Their pay schedule may also be weekly, bi-weekly, or monthly. If they are paid weekly, then the employee would learn $680 per paycheck for a 40 hour week. If they worked 35 hours that week, then they will learn $595 that week instead.

These are the major differences between hourly vs salary employees when it comes to actual compensation.

hourly vs salary

Advantages of an hourly employee

From the employer’s perspective, hourly employees are not required to be full-time. This means you will not have to provide benefits such as Retirement accounts, PTO, and healthcare insurance. This works out great for short-term employees, or to save costs.

From the employee’s perspective, however, being an hourly employee gives you more flexibility to work more or less. If you need more money for a certain month, you can just work overtime. This will obviously depend on the employee and if you have the ability to do so. Being an hourly employee also gives you the freedom to do other things / jobs depending on what your interests are.

Being eligible to earn overtime pay means that you get to earn more for working more. Unlike salaried employees, if you work 45 hours in a week, you get paid for it.

Disadvantages of an hourly employee

For the employer, any employee that works beyond 40 hours a week gets to earn overtime wages. This can become very expensive very quickly open stations that require a lot of overtime. This also makes payroll that much more difficult, keeping track of all the hourly fluctuations.

For the employee, the opposite is true. For any weeks that you work less than 40 hours, you will get paid less. You also typically don’t get access to employee benefits that salaried employees do such as Retirement accounts, PTO, and healthcare insurance. This is very important to consider if you are figuring out which route to take.

Final thoughts

Whether you opt for hourly vs salary wages, it largely depends on your own working style and personal preferences.

Some individuals might prefer a steady and regular paycheck with no fluctuations, you might prefer consistency and the typical 9 to 5 setting. On the other hand, other individuals may prefer flexibility and the opportunity to do multiple things simultaneously. Instead of a regular steady paycheck, they prefer to keep your options open and have flexibility.

Depending on which you fall under, that can help you determine whether hourly or salary is your preference. Do your research and figure out what’s important to you.

Good luck, and comment below which method of compensation you prefer. Would love to hear your thoughts 🙂

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