HomeFinanceSalary vs. Hourly Pay:...

Salary vs. Hourly Pay: What’s the Difference?

Salary vs. Hourly Pay: An Overview

Compensation for work comes in different forms. Two of the most common types of compensation are salaries and hourly pay. A salary is a specific amount of compensation regardless of the number of hours worked. Employees who are paid a salary are not eligible for overtime pay. Hourly pay is the rate paid per hour of work. Employees who are paid by the hour are eligible for overtime pay equal to their base wage plus 50%.

An employee generally has to earn at least $684 per week or $35,568 per year, be paid on a salary basis, and perform exempt duties that require discretion and independent judgment at least 50% of the time to be considered exempt. You’re probably exempt if you take on managerial duties. You can be paid a salary so your employer doesn’t have to pay you overtime wages no matter how many hours you work.

Salary

A salary is a fixed wage, usually cited as a monthly or annual salary. This means that your paycheck is for the same amount each time it arrives when you earn a salary. An annual wage is a term of your employment and it’s how much you’ll receive for as long as you hold the same job or until the terms are renegotiated. It’s a type of implicit cost for your employer.

Salaried employees receive a fixed rate of pay but there can be a downside to this type of compensation. If you receive a salary, you have specific goals, responsibilities, and/or tasks that must be met or completed even if that means longer hours and working weekends without any additional compensation.

Working additional hours (without extra pay) may make it more difficult to separate work and personal time and achieve a work/life balance. And it can mean added stress and pressure to complete your tasks even if that means sacrificing your own time.

Hourly Pay

If you’re an hourly employee, you’re paid for all the hours you work. Your employer must pay you more if they want more of your time. Legal overtime is time and a half and some employers may pay double time for holidays. Overtime hours and pay are normally part of an employment contract. But keep in mind that allowing overtime is at the discretion of the employer.

Working hourly means you could bring home more than if you earned the same official pay on a salaried basis if you’re in a well-compensated field with lots of available overtime.2 There’s also an effect on lifestyle. Hourly employees can find it easier to separate home and work. They can concentrate on family, hobbies, or a second job when their work is over for the day.

But being paid hourly also makes you more vulnerable. Hourly employees often feel the impact first when laws change or their company goes through tough times. It’s easier for an employer to knock off some of your hours until business improves than it is to eliminate an entire salaried position. Hourly employees protected by a union may be protected against some of these risks, however.

There also are possible effects on eligibility for healthcare coverage. The Affordable Care Act (ACA) requires businesses with 50 or more employees to provide healthcare to full-time employees, who are defined as people working 30 or more hours. Some businesses keep hourly employees to fewer than 30 hours to avoid this mandate.34

The Fair Labor Standards Act (FLSA) governs which type of payment an employee receives. You can’t negotiate whether your job is exempt or nonexempt because of the terms of the FLSA. The duties you perform determine your job category regardless of your job title.

Salary vs. Hourly: Key Differences
Salary Hourly 
Guaranteed weekly wage Pay varies based on the hours you work
No overtime pay Overtime pay at the rate of time and a half for each hour worked over 40 hours
Employer-sponsored benefits, such as healthcare coverage, paid vacation, and sick days May be responsible for their own health insurance and they’re not paid except when working
Harder to separate work from personal time Can leave work behind when not on the job
Salary comes with a sense of job security Employers can more easily cut your hours if they choose to

What Is an Implicit Cost?

An implicit cost is money that a company or firm spends on resources that it already has in place. It’s more or less a voluntary expenditure. Salaries and wages paid to employees are considered to be implicit because business owners can elect to perform the labor themselves rather than pay others to do so.

How Much Does the Average American Worker Earn?

The Bureau of Labor Statistics (BLS) indicates that American workers earned a median income of $1,118 per week in the third quarter of 2023. This includes both wage earners and salaried employees. The figure dropped to $1,005 for women. It increased to $1,208 for men. Half of all workers earned more than this median and half earned less.6

How Many Americans Have No Earned Income at All?

The national unemployment rate was 3.7% as of November 2023. The rate was less than this in 19 states, however.7

The Bottom Line

There are both pros and cons to being an hourly versus a salaried employee. But salaried employees enjoy more benefits for the most part, such as paid vacation and sick days, retirement accounts, and other employer-sponsored benefits. Hourly workers don’t usually receive compensation in the form of paid leave by the companies who hire them and they may be responsible for their own healthcare. But hourly employees enjoy more autonomy and may even be able to set their own hours.

Investopedia

 

- A word from our sponsors -

spot_img

Most Popular

More from Author

Chanel Ties Paris Fashion Week Up With a Bow

Long before the “bow girl,” in all her coquettecore glory, became a fashion...

Miu Miu Was Cool-Girl Catnip

Miu Miu has a knack for bringing It girls not just...

Saint Laurent Solidifies the Season of the Big Shoulder

There was one big thing that united Saint Laurent’s winter 2025...

Reading Festival organisers quizzed over waste

The organisers of one of the UK's largest music festivals have...

- A word from our sponsors -

spot_img

Read Now

Chanel Ties Paris Fashion Week Up With a Bow

Long before the “bow girl,” in all her coquettecore glory, became a fashion archetype, there was Chanel. This morning at Paris Fashion Week, the French house wrapped the Grand Palais in a massive black ribbon to celebrate one of its most beloved motifs. (One which dates back to the...

Miu Miu Was Cool-Girl Catnip

Miu Miu has a knack for bringing It girls not just to the front row, but onto the runway. Today at Paris Fashion Week, the former group included Sydney Sweeney, Nara Smith, Alix Earle, and Renée Rapp. (And at least one It guy: A$AP Rocky.) At the Palais D’Iéna, the walls had...

Saint Laurent Solidifies the Season of the Big Shoulder

There was one big thing that united Saint Laurent’s winter 2025 collection: huge, powerful shoulders. Models paraded around the perimeter of a large oval onyx floor wearing every single version of the massive shoulder. They appeared on ’80s power-suit-style dresses in vibrant colors, oversized outerwear, and even...

Reading Festival organisers quizzed over waste

The organisers of one of the UK's largest music festivals have been grilled over the tonnes of waste and tents that are left behind each year. Reading Festival attracts tens of thousands of people to Little John's Farm in the Berkshire town on the August bank holiday weekend...

Ray Meade: ‘When they told me I had MS, I thought I was done’

Like most of us, guitarist Raymond Meade had a slow and quiet summer in 2021. The pandemic had put a stop to live touring with Ocean Colour Scene, with whom he had played since 2016. And without recording studios, he was unable to continue with his successful solo career. But...

Oasis sale ‘may have misled fans’ says watchdog

Ticketmaster "may have misled Oasis fans" with unclear pricing when it put their reunion tour on sale last year, the UK's competition watchdog has said. The Competition and Markets Authority (CMA) said the company may have breached consumer protection law by selling "platinum" tickets for almost 2.5 times...

Window cleaner in quest to confirm priceless Shakespeare portrait

Window cleaner Steven Wadlow has spent more than a decade trying to prove he is in possession of a priceless, authentic Shakespeare portrait. His quest is now being told in a Netflix documentary. What is the story behind the find? Steven, who lives in Aylesbury, Buckinghamshire, said his...

What is the Signal messaging app and how secure is it?

The free messaging app Signal has made headlines after the White House confirmed it was used for a secret group chat between senior US officials. The editor-in-chief of the Atlantic, Jeffrey Goldberg, was inadvertently added to the group where plans for a strike against the Houthi group in...

Papua New Guinea blocks Facebook to ‘limit’ fake news and porn

Papua New Guinea has blocked access to Facebook in what authorities call a "test" to limit hate speech, misinformation and pornography. The sudden ban, which started on Monday, has drawn criticism from opposition MPs and political critics, who called it a violation of human rights. Defending the move, Police...

Bollywood actress vindicated over boyfriend’s death after media hounding

Bollywood actress Rhea Chakraborty was called "a gold digger" and "a murderer". She was slut-shamed and spent 27 days in prison after a hate-filled vicious media campaign in 2020 alleged she had been involved in the death of her actor boyfriend Sushant Singh Rajput. Now, India's federal investigators...

UK Detects First Case of Bird Flu in a Sheep, Stoking Fears of Spread

LONDON, March 24 (Reuters) - Bird flu has been detected in a sheep in northern England, the first known case of its kind in the world, Britain’s government said, adding to the growing list of mammals infected by the disease and fueling fears of a pandemic. Many different...

Half of family-run businesses cancel investments as tax grab looms

More than half of family-run businesses and farms have paused or ditched investments as they scramble to cut costs ahead of Rachel Reeves’s inheritance tax (IHT) raid, data shows. More than 55pc of businesses surveyed by Family Business UK and CBI Economics said they had cancelled investments or...