Salary vs. Hourly Earnings: What Are the Differences?
By Jennifer Herrity
Updated May 24, 2022 | Published October 7, 2019
Updated May 24, 2022
Published October 7, 2019
Jennifer Herrity is a seasoned career services professional with 12+ years of experience in career coaching, recruiting and leadership roles with the purpose of helping others to find their best-fit jobs. She helps people navigate the job search process through one-on-one career coaching, webinars, workshops, articles and career advice videos on Indeed's YouTube channel.
This article has been approved by an Indeed Career Coach
Related: Salary Negotiation Tips: During Interview + After Job Offer
In this video, Jenn shares 3 tips on salary negotiation during the interview process AND 3 tips on how to negotiate salary with a job offer in hand!
When looking for a new job, compensation is often the deciding factor for many people. When you are hired for a position, you will receive earnings as either a salaried or hourly employee. Understanding the difference between salary or hourly pay can be helpful.
In this article, we discuss the differences between hourly and salary pay, including the benefits and disadvantages of each.
Why is important to understand salary and hourly pay?
Learning about salary vs. hourly wage is essential, especially when you’re negotiating rates for a new job. Understanding the difference between a salary versus an hourly wage can help you choose the best position to suit your needs.
What is an hourly rate?
Your hourly rate is the amount of money you earn for each hour you spend working. As an hourly employee, you should get paid for all of the hours that you work. If an employer wants more of your time, they’ll have to pay you more.
For example, if you work 25 hours and 30 minutes, you’ll get paid for 25.5 hours. If your hourly rate is $17.50, you’ll receive $446.25 for your time:
$17.50 x 25.5.
What is a salary?
Salary is a consistent payment to an employee based on working a full-time position. Employers typically usually distribute salaries on a monthly or bimonthly basis, but some businesses pay salaries out annually. The amount and frequency of your pay should be part of your employment contract.
Each salary payment is a fixed amount. For example, you’ll get $5,000 per month before taxes with a salary of $60,000 per year. This is called gross pay, and the amount after taxes is net pay.
Many large employers have a set salary range for each position. Salary range is typically determined by comparing the industry averages based on position type, level and location. Salaries are also related to your education, your previous experience and the amount of time you’ve worked for a company. Salary ranges are also impacted by supply and demand. Typically you can get better offers in areas with multiple vacancies for jobs similar to yours.
Read more: What is Gross Pay?
Benefits and downsides of salary and hourly pay
Salaried and hourly compensation methods have different benefits. Some individuals prefer hourly positions while others may look for positions with salaries depending on their industry, needs and schedule. Let’s explore a few of the benefits and disadvantages of both types of pay.
Benefits of salary pay
Receiving a regular salary can be better than an hourly job for several reasons:
Salaried employees get a set amount from their employers consistently. Every check is the same, even if there’s a holiday. You can also use sick days if needed without having your paycheck reduced. A steady income can reduce stress and allows more flexibility when you have unexpected expenses.
Full-time, salaried employees are likely to get additional employment benefits such as health care, matching contributions to a 401(k) and paid vacation time. Even if a salaried job with benefits pays less than an hourly job, it could put you in a better financial position. Perks such as maternity or paternity leave, gym membership reimbursements or free child care can provide significant savings.
More career advancement opportunities
Generally, a salaried position comes with more responsibilities than an hourly job. Even if you accept a pay cut to move from an hourly to a salaried role, it could be worth it in the long term. In addition to added benefits like health insurance, you could be promoted to a more advanced position more quickly than an hourly employee. Management roles, for example, are typically required to be full-time employees.
Disadvantages of salary pay
Per federal law, businesses have to pay hourly employees overtime for hours worked in excess of 40 hours per week. They can still require salaried employees to work as long as it takes to get the job done. There’s no additional compensation for additional hours, so a demanding boss could easily keep you at work with additional tasks.
Benefits of hourly pay
Working an hourly position can certainly be more beneficial in some cases. Here are some benefits of receiving hourly wages:
Most businesses use a time tracking system that pays employees by the minute, so, if you receive hourly pay, you should be compensated if you need to stay at work late. Since federal law requires overtime for hourly employees, you could make hundreds of additional dollars per week if your job needs you for more than 40 hours a week during a busy time.
Opportunity for holiday pay
Overtime typically is time and a half, but some employers will pay double or even triple time for holidays such as New Year’s Eve. If you work in a field where overtime is common, you may earn more than you would if you had a salaried position with comparable pay. Overtime work and the extra pay associated with it is not necessarily guaranteed. You should make sure that it (and any other promised benefits) are part of your contract before you accept a job offer.
Ability to dedicate time to other interests
Having an hourly position allows you to schedule for other interests like improving skills, going to school, starting your own venture or working another full or part-time job.
Disadvantages of hourly pay
The income of an hourly employee might be more vulnerable to changes. Hourly positions typically feel the impact of a poor economy or economic downtown in their industry first. Many businesses choose to reduce the hours for hourly employees instead of laying off salaried employees. For example, someone getting hourly pay who usually works 40 hours per week could lose 25% of their normal wage if their boss decides to schedule them for 30 hours during weeks that aren’t busy.
Hourly employees can also be affected by missing their scheduled hours. For example, someone who is 10 minutes late for a job that pays $17.50 per hour will miss out on $2.92 before taxes.
In addition to losing money for tardiness, hourly employees don’t generally enjoy the same flexible hours as salaried employees. While a salaried employee will have a somewhat flexible schedule that typically allows for sick days and paid time off, an hourly employee must arrive and clock in on time to start their shift.
The Affordable Care Act requires businesses with 50 or more employees to help pay for health insurance for those who work 30 or more hours per week. Some companies have chosen to avoid this obligation by keeping each hourly employee from working more than 29 hours per week.
If your employer decides to reduce your hours permanently, you could have to find a second job or an altogether new position. If you’re searching for jobs due to reduced hours, visit our guide on using the Indeed.com job search.
Related: Searching Salaries By Location on Indeed.com
To use Salary Trends, enter the job title you’re interested in learning more about, and you’ll see the job’s salary range and the average salary at popular companies. You can view the national trend or select individual states and cities.
Explore more articles
- How Much Does a Neurologist Make? Salary and Career Details
- How Much Does a Research Specialist Make? (Plus Ways To Make More)
- US Congressman Salary and Benefits (With Duties)
- How To Negotiate Salary After a Job Offer (With 13 Tips)
- How Much Do Engineers Make? (With Salaries by State)
- How Much Do Fashion Designers Make?
- Q&A: What's Included in a US Army Salary?
- How Much Does an Electrician Make? And Other Frequently Asked Questions
- Referral Bonuses: Definition, Types and Guidelines
- Salary Calculator
- How Much Money Do Chefs Make?
- How To Handle a Salary Cut