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Salary vs. hourly pay: Pros, cons & key difference to know

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Many people who are salaried employees wish they were paid by the hour. It’s also true that many employees who are paid for each hour worked wish they were salaried. Is it because the grass is always greener on the other side?

Actually, being a salaried worker has some distinct advantages, as does being paid for each hour you work. Let’s look at the differences between the two, the pros and cons of each, the typical types of workers with hourly and salaried positions, and more.

Key differences between salary & hourly pay

If you’ve ever had to punch a time clock, like an old metal one that hung on the breakroom wall or one you logged into on your computer, you were probably being paid by the hour. Your manager wanted to see when you got to work in the morning, when you took lunch, and what time you left at the end of the day.

At the end of the week, your boss approved (hopefully) your time card, and the payroll department cut you a check for the number of hours you worked multiplied by your hourly pay rate.

For example, if you worked 30 hours and were paid $13.00 per hour, your gross pay for that week would have been $390 (30 hours x $13 per hour).

On the other hand, salaried employees don’t clock in at work. They’re expected to work a full work week (however many hours the company deems that to be) and are paid a set amount on payday. When you’re hired as a salaried employee, you’re typically quoted an annual salary, even though you may be paid weekly.

For example, if your salary is $600 per week and you’re paid every week during the year (52 weeks), your annual salary would be $31,200 ($600 per week x 52 weeks).

Larger employers often use a salary range when they hire new, salaried employees. These are often called the minimum, mid-point, and maximum salary levels. The salary level at which you start is usually determined by your prior work experience, your education level, and the supply and demand of your position.

Starting salaries for many positions are now higher than the midpoint level, thanks to the great resignation resulting from the pandemic. Certain jobs (software engineers, software designers, truck drivers, and restaurant servers, to name a few) are in high demand, but there is a short supply, which is driving salaries (and hourly wages) higher.

Salary vs. hourly pay pros & cons

Being paid for each hour you work or receiving a salary both have their pros and cons.

Pros of getting paid by the hour

You can be paid overtime

If you work more than 40 hours a week, every hour you work over that will earn you overtime pay, which can add up to hundreds of hours per week.

For example, a construction worker assigned to a job that is behind schedule may be asked to work an extra 10 hours per week. If their hourly rate is $40 per hour, they will earn an additional $400 per week.

You can earn holiday pay

Hourly workers often earn time and a half for working on a holiday. For example, if you’re a retail sales clerk and you work on Thanksgiving Day, your employer will probably pay you 1 ½ times your regular hourly rate that day. So, if your standard hourly pay is $12.00 per hour, you will be paid 1 ½ times that ($18.00 per hour) for working on the holiday.

Cons of getting paid by the hour

Having your hours cut & losing income

When a business experiences a downturn, workers who are paid hourly are often the first employees negatively affected. Employers will cut their employees' hours, hurting their pay that week. Someone who is paid $20 per hour and has their hours cut by 10 hours a week will have a paycheck $200 smaller every week than they’re used to.

Losing income because of missing work

If you’re paid by the hour and your car doesn’t start one morning you’re scheduled to work, you’ll lose money if you can’t get to work on time. Not only will your boss be unhappy, but you’ll be disappointed on payday because of the hours you missed getting paid for.

Having less flexibility than salaried workers

If you’re paid by the hour and your day starts at 8 am, if you show up for work at 8:30 am, the chances are good you won’t be paid for the half-hour you missed.

[ Related: 7 work-life balance tips to follow throughout your career ]

Pros of getting paid a salary

Your paycheck is consistent

If you’re paid a salary, you’ll get the same amount of money every payday, including when there is a holiday during that pay period.

You get better benefits

Salaried employees usually get full benefits, such as health insurance, life insurance, long-term disability insurance, and a retirement plan like a 401(k). Many employers also offer their employees supplemental insurance, like critical care insurance or accident insurance.

You have more opportunities for career advancement

Salaried employees typically have more opportunities to “climb the corporate ladder” than hourly employees. They’re often in management roles and are usually required to be full-time, salaried employees.

Cons of getting paid a salary

You might work overtime & not get paid

Salaried workers don’t get paid if they work overtime, unless it’s a rare occasion when the company pays a bonus for overtime work. If you’re salaried and your 8-hour day becomes a 10-hour day because you had a deadline to complete a project, you won’t get paid for the extra 2 hours you worked that day.

Typical types of hourly & salaried workers

It’s been estimated that as many as 80% of workers in the U.S. are hourly workers. They include cooks, bakers, cashiers, retail sales associates, hostesses, and baristas.

Most salaried employees work for larger companies and are considered white collar workers. This includes office administrators, executive assistants, and middle and senior managers.

[ Related: How new collar jobs stack up against white & blue collar jobs ]

Salary vs hourly pay: Which is better?

Neither method of being paid is better than the other. There are some employees paid hourly who earn more in 40 hours than someone being paid a salary by another company with that same position.

If you’re a part-time employee paid by the hour and wish to become a permanent full-time, salaried employee, stay focused and do the best work possible. In today’s employment environment, most employers are looking for dedicated employees and are rewarding them handsomely.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published June 21, 2022
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