{"id":21671,"date":"2020-07-22T08:41:00","date_gmt":"2020-07-22T08:41:00","guid":{"rendered":"https:\/\/toggl.com\/blog\/?p=21671"},"modified":"2024-11-19T10:24:52","modified_gmt":"2024-11-19T10:24:52","slug":"salary-vs-hourly-guide","status":"publish","type":"post","link":"https:\/\/toggl.com\/blog\/salary-vs-hourly-guide","title":{"rendered":"Salary vs. Hourly: Differences, Pros & Cons Explained"},"content":{"rendered":"\n

Illustration: Hoi Chan<\/em><\/p>\n\n\n\n

It\u2019s important to understand the differences between salary vs. hourly pay, whether you\u2019re an employer or employee. Knowing the pros and cons will help you decide which option suits you or your business best.  <\/p>\n\n\n\n

Salary vs. hourly pay: What\u2019s the difference?<\/strong><\/h2>\n\n\n\n

In the U.S. most people get paid either through a salary or hourly pay. The main difference between the two is that a salaried income is set in advance, while hourly pay fluctuates depending on the amount of time you work.<\/p>\n\n\n\n

What does it mean to have a salary?<\/strong><\/h2>\n\n\n\n

No matter how many hours they work, salaried staff are paid a set amount. Salaried positions are mainly full-time roles, and pay is calculated as an annual figure. This is divided equally across the year\u2019s payments, which are usually made weekly, bi-weekly or monthly.<\/p>\n\n\n\n

Salary figures are wide-ranging. They can depend on an employee\u2019s education, experience and the sector they work in.<\/p>\n\n\n\n

Paid vacation, health insurance and a 401(k) retirement plan<\/a> (in the case of the U.S.) are some of the company benefits salaried workers can receive.<\/p>\n\n\n\n\n\n

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What does it mean to work an hourly rate?<\/strong><\/h2>\n\n\n\n

Employees on an hourly wage get paid an agreed-upon rate for each hour they work. Hourly workers in the United States must receive the state or federal minimum wage\u2014whichever is highest.<\/p>\n\n\n\n

People on an hourly wage record the hours they work using timesheets<\/a> or time card systems. They aren\u2019t guaranteed a set number of hours each week, unless protected by a labor contract. This means income can vary.<\/p>\n\n\n\n

Some hourly workers will receive company benefits, but this depends on their employer. However, the employer\u2019s contribution will often be lower than that provided to salaried employees.<\/p>\n\n\n\n

Salary vs. hourly overtime laws<\/strong><\/h2>\n\n\n\n

In most situations salaried workers in the U.S. are classed as exempt employees and aren\u2019t entitled to overtime pay. According to the latest U.S. Fair Labor Standards Act (FLSA) rules<\/a>, employees are considered exempt if they receive a salary, earn more than US$684 per week\/$35,568 a year, and perform duties classed as executive, administrative, professional, computer or outside sales.<\/p>\n\n\n\n

However, some employers offer overtime or time off in lieu to salaried staff. In addition, several states have laws that allow a greater number of salaried employees to receive overtime pay. U.S. workers can check with the Department of Labor<\/a> to find out where their state stands.<\/p>\n\n\n\n

Under the FLSA, hourly-paid workers are usually classed as non-exempt employees and are entitled to overtime pay\u2014at a rate of at least time and a half\u2014for anything over the standard 40-hour work week.<\/p>\n\n\n\n

Are salary vs. hourly staff taxed differently?<\/strong><\/h2>\n\n\n\n

In the U.S., salaried and hourly employees receive a similar tax form from the Internal Revenue Service (IRS) every year. Known as W-2 Hourly and W-2 Salaried, both types of employee need to provide the same information, and the employer deducts the tax from the hourly pay or salary. The rate of tax is the same for both salaried and hourly-paid staff.<\/p>\n\n\n\n

As an employer, you pay tax according to the total amount on your payroll\u2014whether salaried employees, hourly workers or both.<\/p>\n\n\n\n

Advantages and disadvantages of salary-based pay<\/strong><\/h2>\n\n\n\n

Each type of pay has its own advantages and disadvantages. Here we look at the pros and cons of salary-based rates for both employers and employees.<\/p>\n\n\n\n

Advantages<\/strong><\/h3>\n\n\n\n

There are many advantages to choosing a salary-based income, from consistent pay to a variety of company benefits.<\/p>\n\n\n\n