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. 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.

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.