The pros and cons of salary vs hourly pay

Last updated: April 24, 2024
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The pros and cons of salary vs hourly pay
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If you’re currently on the hunt for a job, you may end up applying for a variety of roles. And in the ideal scenario, you’ll receive more than one attractive job offer that you get to choose from.

But what happens if you get offered two similar roles with very different pay structures?

It can be hard to understand which one is best when one employer is offering you an hourly rate and another is offering a salaried position.

While there are pros and cons to each option, understanding the key differences, as well as the laws in place, will help you decide which is the best option for you.

In this article, we'll discuss the differences between exempt workers and non-exempt workers and the perks and disadvantages of salary vs. hourly pay.

Plus, you'll learn whether you can switch from one type of pay to another without changing jobs.

What is a salaried employee?

If you're a salaried employee, you'll receive a fixed amount of money each year.

While most salaried employees work full-time with a 40-hour workweek, there may be times when you need to be available beyond this. And, some salaried workers are on-call.

If you work long hours or perform extra duties, you won't get overtime pay.

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However, most salaried workers receive a higher pay rate than their hourly counterparts. Plus, they often get a comprehensive benefits package. Depending on eligibility, salaried employees can get access to retirement plans, health insurance, and bonuses.

If you're on a salary, you can expect a set amount of pay either weekly, bi-weekly, or monthly. Your employer can’t pay you less than the federal minimum wage.

What is an hourly employee?

An hourly employee gets paid for each hour of work they do. If you're an hourly employee, you'll get a set hourly rate that varies depending on the job title.

Hourly employees usually get paid extra for overtime hours, and they may have to fill out a timesheet after each shift. Being an hourly employee can give you more flexibility to choose when you have unpaid time off.

Even if you have an hourly position, you can still be a part-time or full-time employee. You may still get some of the perks and benefits that salaried employees receive, but they may not be as broad.

Pay periods for hourly workers are usually weekly or bi-weekly.

What types of jobs have a salary?

There are a number of different industries that have salaried employees. Healthcare jobs often come with a salary, including registered nurses, surgeons, physicians, and anesthesiologists.

Teachers, police officers, and government workers often get paid a salary.

Management positions such as office managers, CEOs, directors, assistant managers, and project managers usually come with a competitive salary. In fact, the average salary for management positions is $109,760 per year.

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These workers usually need to be available after hours, so it makes sense that their income covers their role, not just when they work.

What types of jobs offer hourly pay?

If you'd rather get paid per hour, there are a range of jobs you can apply for. For example, administration and customer service jobs often have an hourly wage.

Construction workers get paid hourly or per project, and they can usually earn more if they work overtime. As an example, if you're looking for a new job in this industry, you'll start as a laborer. The average hourly rate for a laborer in the U.S. is $17.83.

Most entry-level positions have hourly wages. These jobs include customer service representatives, drivers, bartenders, and cleaners.

Some workers choose to have more than one hourly job at once.

What’s the difference between exempt and non-exempt employees?

A few decades ago, most employees were overworked and underpaid.

To protect employees from these unfair practices, the government released the Fair Labor Standards Act (FLSA).

The FLSA is a law that states that employees have the right to a minimum wage and overtime pay, except for those who are considered exempt.

The word “exempt” means being free from a given obligation. So, being an exempt employee means that you don’t qualify for overtime pay and minimum wage.

In other words, the main difference between these two categories lies in the obligations your employer has for your pay. That is, the “protections” of wage and hour laws in your state, as well as those provided by the federal government.

Whenever a non-exempt employee works more than 40 hours in a given week, the employer should pay overtime.

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Exempt employees, on the other hand, can or cannot receive overtime pay. It’s up to the employer to decide.

Non-exempt employees are commonly paid per hour. Exempt employees have a fixed salary.

Now, why does this matter?

Being aware of your job classification will help you make better decisions along the way. Also, knowing the responsibilities your employer has towards you will help you make sure you get paid fairly and avoid any misunderstandings.

How do you know whether you’re exempt or non-exempt?

To be considered exempt, an employee must meet certain criteria, including:

  • Compensation

  • Job duties

In terms of compensation, exempt employees must earn at least $684 per week or $35,568 per year (as of January 2020).

And the employee’s job duties must meet the requirements of one of the exemptions listed in the U.S. Department of Labor’s Fact Sheet #17A.

Some of these exemptions are:

  • Executive: the employee should direct the work of two or more employees.

  • Administrative: the employee should perform activities that are related to the operation of the business.

  • Professional: employees with advanced knowledge in a specific field.

  • Outside sales: sales done outside the employee’s place of work.

Salary alone is not enough to determine whether you are exempt or non-exempt. Your job duties must also meet the requirements listed above. Otherwise, your role is not considered exempt.

For instance, some employers offer non-exempt employees a salary, but they also track the hours worked and pay overtime. To be considered exempt, a given employee must meet the criteria for both compensation and duties.

Neither you nor your employer can choose to make a position exempt or non-exempt, as it’s classified depending on the characteristics of the job.

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So, depending on the type of job you’re going for and the average rate of pay for that position, you (and your potential employer) may not have a choice about whether you are offered an hourly rate or a salary.

To clarify these concepts, here’s a quick side-by-side comparison:

Non-exempt workers

Exempt workers

Must make at least minimum wage per hour

Must make at least $684 a week and meet specific job duties required by FLSA

Qualify for overtime pay of time-and-a-half when working more than 40 hours per week

Don’t qualify for overtime pay but may qualify for bonuses and commissions

Typically have hourly jobs

Typically have salaried jobs

Before accepting a job offer or a promotion, we suggest you have an honest conversation with your employer and ask which classification your job falls into.

This way, you’ll have clear expectations on the type of compensation you should expect.

How to calculate pay for salary vs. hourly

Now that you understand the main differences between salary (exempt) and hourly (non-exempt) pay structures, how do you calculate each?

You can find a salary calculator online, or you can do the process yourself. Let’s break down the steps:

How to calculate pay if you’re paid hourly

In short, there are four steps:

  1. Define your hourly wage

  2. Calculate how many hours you worked in the last period

  3. Multiply the hours you worked by your hourly wage

  4. If you worked over 40 hours, take the extra hours you worked and multiply them by time-and-a-half of your hourly wage.

For example, let’s say that you make $8 an hour and you worked 60 hours last week. Here’s how you should calculate your pay:

  • 40 (hours per week) * 8 (hourly wage) = $320

  • 20 (overtime) * 12 (hourly wage * 1.5) = $240

This means that, in total that week, you’d have earned $560 (before taxes) as an hourly worker. You can then multiply this by the number of weeks you work in a year to see your yearly salary. Keep in mind that your take-home pay may differ after income taxes are deducted.

How to calculate pay if you’re paid a salary

To get a more clear comparison between these two pay structures, you should turn your annual salary into an hourly wage.

Here’s how:

  1. Define how much you earn per year (e.g., $36,000 per year)

  2. Divide your annual income by the number of paid workdays in your company (typically, companies use a 260-day calendar to base their salaries). The result will indicate your daily income.

  3. Divide your daily income by eight to calculate your hourly wage.

For example, imagine that you earn $30,000 per year, and you get paid weekly. Let’s also say that the company you work for bases salaries on a 260-day calendar.

In this case, here’s how you should calculate your pay:

  • $30,000 (annual income) / 260 (days worked) = $115.38 per day

  • $173.07 (daily income) / 8 (daily hours worked) = $14.42 per hour

In this scenario, this salary pay structure seems more attractive than the hourly option shown above. Just remember that, sometimes, getting a fixed salary also means working more without getting overtime pay.

By calculating these two options side-by-side, you can get a more accurate perspective and make a more informed decision on the job offer that seems more convenient to you.

You can also take a look at this salary conversion chart for a quick calculation between hourly and salaried pay:

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Do salary or hourly employees get taxed more?

Your employer takes money out of your wages for tax purposes. The amount depends on how much money you make.

It doesn't matter if you're an hourly or salaried employee. The tax rate is the same.

The only difference is when your employer receives a tax form from the IRS (Internal Revenue Service), it'll be either the W-2 Hourly tax form or the W-2 Salaried tax form.

Remember, if you're receiving benefits, there may be pre-tax deductions. For example, your 401(k) retirement savings, health insurance, and flexible savings account (FSA) may be tax-free.

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These deductions can reduce the amount of tax you pay, and salaried employees usually get more perks than hourly ones.

Can I switch between salaried and hourly?

In general terms, you can — it’s legal.

It doesn’t always depend on you, though. An employer can make status and pay structure changes to an at-will employee at any time.

But even if you weren’t hired “at will,” your employer might offer to switch your pay structure. In some cases, the switch means a promotion. Other times, it means the company is trying to cut costs.

Whatever the case, here are some things to consider:

Hourly to salaried

When you’re offered a salary, it’s the perfect opportunity to negotiate your rate of pay. Even if you don’t want to earn more, you should still define an acceptable salary based on the hourly wage you’re currently earning.

You can use the calculations shown in the previous section to come up with a better solution.

We also suggest you have an open conversation with your employer and ask about the implications this switch might bring to your specific situation.

Salaried to hourly

If you’re going from a salaried pay structure to an hourly wage, be careful. Salaried employees generally earn more than hourly (and they have the added benefit of a consistent paycheck). If you’re not working a full 40 hours each week, your annual pay may decrease.

Now, this doesn’t mean that switching from salary to hourly is always bad. The only way to know for sure is by making your calculations and seeing which option is more beneficial to you.

Is it better to be a salaried employee or an hourly employee?

That’s the question, right?

To be honest, the answer depends on a few factors, including:

  • Overtime: By using the calculations above, you can determine whether overtime is worth it.

  • Benefits: Confirm with your employer (at the point of wage negotiation) the benefits included for the status that is offered for the position.

  • State laws: Sometimes, state laws may classify you differently than federal law (e.g., in some states, exempt workers earn more than the federal law’s minimum wage).

To get a more accurate comparison between the two payment options, let’s cover some of the pros and cons of each:

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Pros and cons of hourly employees

If you’re an hourly employee, you earn a fixed rate per hour. Most hourly workers are non-exempt, so you’ll need to be paid overtime when you work more than 40 hours per week.

Let’s take a look at the pros and cons of being an hourly employee:

Pros of being paid hourly

  • The opportunity to earn more by working more.

  • More flexibility over your schedule, especially if you’re a part-time hourly employee.

  • You’re eligible for overtime pay if you work more than 40 hours per week.

Cons of being paid hourly

  • In hard times, an employer can cut some hours of work and, thus, reduce your income.

  • You may have reduced benefits, especially for part-time employees (e.g., lack of health insurance).

  • You’ll only be paid by the number of hours that you work (e.g., if your employer calls the day off for some reason, you probably won’t get paid for the hours you didn’t work).

If you’re an hourly employee, you may love getting the option to work overtime. If you’re salaried, you may have to stay late more often without extra pay.

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Pros and cons of salaried employees

If you’re a salaried employee, you’re paid a fixed annual salary rather than being paid by the hour. Regardless of the number of hours you work, you will still get a steady paycheck.

Salaried workers are typically classified as exempt and aren’t eligible for overtime pay.

Let’s take a look at the pros and cons of salaried employees:

Pros of being salaried

  • You earn a consistent amount of pay regardless of the number of hours worked

  • You may get extra perks and benefits (i.e., health insurance, life insurance, paid vacations)

  • You may feel more overall job security

  • You often have more opportunities to take time off for family commitments

Cons of being salaried

  • You may need to stay extra hours to fulfill higher responsibilities without pay

  • You may not be eligible for overtime pay

  • You may feel pressured to be “on” all the time

Choosing a salary or hourly job

Both salaried and hourly-paid employees get both advantages and disadvantages.

Salaried employees get the security of a steady paycheck, whereas hourly employees can put in some extra hours and increase their income.

The type of job can determine whether it’s hourly or salaried. For example, a nurse may get a salary, while a construction laborer could get paid per hour.

In the end, choosing to be a salaried employee or an hourly employee will depend on your unique needs, preferences, and future goals. But remember, it doesn’t always depend on you.

Ready to learn more? Need more resources? At Jobcase, we love empowering employers and employees to achieve work-life success. Learn more from the Getting Hired Resource Center.

Or start your job search on our job board.

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