Salary vs hourly: What's the Difference?

According to the latest Labor Department Data, 82.3 million workers ages 16+ were paid at hourly rates. That’s a whopping 58.1% of all workers in the US, while the other 41.9% makes up the rest of the full-time salaried workforce. These numbers tell us that there are many employment options available, both hourly and salaried. So, the question becomes which is better for your company?

Similar to an exempt vs non-exempt employee, choosing salary vs hourly can sometimes be unnerving. There are tons of different factors to consider: the employee’s workload and responsibilities, relevant state laws, benefits, wages, overtime pay, number of hours and much more. Before you decide, you will first need to take note of the differences between the two.

Is it better to be paid salary or hourly?

As the name suggests, hourly workers are paid an hourly wage while salaried employees earn a preset amount that isn’t dependent on the hours they work each week. Ultimately, you will want to figure out which type of employee is more cost-efficient for your company and this article emphasizes the benefits of both hourly and salaried employees and offers tips to help identify which is best for your organization’s needs. Read on to find an in-depth analysis of salary vs. hourly positions.

What are the pros and cons of salary and hourly?

1. Hourly employees receive additional compensation for overtime, whereas salaried employees collect regular and consistent paychecks.

An hourly employee working overtime will receive time-and-a-half for every additional hour after their first forty hours . If they regularly work more than forty hours a week, they may earn more money than they would in a salaried position. However, you can keep these costs down by preventing employees from working overtime and limiting their hours.

A salaried employee, on the other hand, will receive regular and consistent paychecks, but if they’re required to work overtime, they won’t receive compensation for the extra hours. It’s important to determine how frequently they might be asked to work overtime at a particular position. If it’s often, hiring salaried employees may be more economical than recruiting hourly workers. However, do take note that some states have expanded eligibility for overtime, so be sure to check your State’s Department of Labor guidelines.

2. Hourly employees receive holiday pay, whereas salaried employees usually receive paid time off and additional benefits.

Though there are no federal or state laws requiring companies to pay more than the usual hourly rate on holidays, companies do typically pay extra for shifts that take place during these periods. This is a subtle way to give thanks to your hourly workers. If your organization requires its employees to work on holidays, be prepared to fork out more capital to cover their wages.

In the case of salaried employees, employers are still expected to pay them a commensurate salary if they decide to go on leave for a particular holiday. This is because salaried employees receive benefits such as paid sick days, paid time off, and sometimes even health insurance. Under certain circumstances, however, it is legal to deduct from your salaried workers’ paychecks when they miss too many hours. 

Our advice to you? Take into account how busy your business operations will get during the holidays. If your increased profits offset the higher labor costs incurred from hiring hourly workers, consider employing them instead as they will probably be more incentivized to work during the holidays as compared to salaried workers.

3. Hourly employees have more flexibility in their schedule, whereas salaried employees have a predetermined schedule and mandatory overtime when needed.

Let’s say you require your employees only on some days or at a particular time; hiring hourly employees will probably be the better choice for you here. Since you will have more flexibility in determining their schedule, you can ensure that labor expenses are incurred only when you need the manpower. 

Meanwhile, salaried employees will earn the same income whether or not they have tasks to complete. While this may mean that your payroll process will be easier, you might be wasting your resources in cases where they come to work with nothing to do. However, if you consistently require their support for your business operations, a salaried worker will probably be better than an hourly one since you don't have to track their working hours.

Salary vs hourly: In summary

If cost is a big factor in determining the type of employee you should hire, consider using this hourly wage index for hourly wages and this salary calculator for determining salary. This allows you to objectively see the total costs tied to an employee and lets you have a better understanding of the labor and overtime expenses borne by your company. 

It is impossible to state whether it’s better to hire an hourly or salaried position without knowing your organization’s needs. Each has its pros and cons, so the best thing you can do is to analyze the demands of your company and check whether they are in line with the expectations that come from a particular type of worker. Ultimately, it is important to review your contract to ensure that you adhere to the labor regulations in your county or district. 

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