Salary vs Hourly: What’s the Difference, and How It Works
A salary is a form of financial compensation from an employer to an employee. Unlike wages, which are typically paid hourly, salaries are a fixed amount of money paid to an employee in exchange for the labor that they perform, regardless of the time it takes to do the job. As such, salaries are often paid in fixed intervals, on either a weekly, bi-weekly, or monthly basis, depending on the company or institution paying the salary.
However, there is a second definition in common use. When you read a job description for a salaried position, it can either refer to the amount people make per pay period, or it can refer to the amount that a person can expect to make in a calendar year working.
Below, we cover some of the more misunderstood differences between salaried and hourly positions.
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Wages and The Fair Labor Standards Act (FLSA)
The Fair Labor Standards Act (FLSA) is a federal law that works in a number of ways, and provides official definitions for different types of compensation. In essence, FLSA standards help to determine federal minimum wage laws, overtime pay eligibility, policies regarding tips and tipped employees, payroll and employer recordkeeping, and child labor laws that affect workers, including federal, state, and local governments, as well as those that work in the private sector. The FLSA observes these standards whether you work full or part time.
However, being paid on a salary basis typically means that an employee regularly receives a predetermined amount of compensation each pay period. This predetermined amount cannot be reduced because of variations in the quantity or quality of the employee’s workload (though there are certain exceptions which will be covered below).
How Does Salary Pay Work?
As mentioned before, pay periods are determined by the employer you work for. Some employees are paid monthly, while others are paid more frequently. While you might be projected to make $50,000 a year on salary, for example, you will still receive regularly scheduled paychecks over the course of a year.
However, the FLSA requires that employers classify positions as either exempt or non-exempt, which means that certain employees are covered by certain compensation rules, while others are not.
Exempt employees are excluded from minimum wage, overtime regulations, and any other rights and protections that are specifically given to non-exempt workers. Typically, exempt status is only applied to those in executive, supervisory, professional, or outside sales positions. In these cases, employers must pay salary, rather than an hourly wage.
FLSA guidelines state that exempt job duties exist if the employee:
- Regularly supervises two or more other employees, and also,
- Has management as the primary duty of the position, and also,
- Has a portion of their duties inputting the job status of other employees, including hiring, firing, promotions, scheduling, and other assignments
It’s not just supervision that defines what an exempt employee is, though. In addition to the above, an employee in an exempt supervisory employee must have management as a primary component of their job. That means that these individuals must fulfill a number of FLSA management duties:
- Interviewing, selecting, and training employees
- Setting rates of pay and hours of work
- Maintaining production or sales records
- Appraising productivity
- Handling grievances or complaints
- Disciplining employees
- Planning the work
- Dividing work among employees and developing work techniques
- Planning budgets for work
- Determining what equipment to be used in performing work
- Monitoring work for legal compliance
- Providing for safety and security of the workplace
Determining which employees are exempt is done on a case-by-case basis, as many managers wear many hats throughout the majority of their shift.
“An employee may qualify as performing executive job duties even if s/he performs a variety of ‘regular’ job duties as well,” according to FLSA guidelines. “For example, the night manager at a fast food restaurant may in reality spend most of the shift preparing food and serving customers. S/he is, however, still ‘the boss’ even when not actually engaged in ‘active’ bossing duties. In the event that some ‘executive’ decisions are required, s/he is there to make them, and this is sufficient.”
The final requirement for exemption is that the employee has input into personnel matters. While they don’t need to be the last word, their opinion on staffing and other decision making aspects of the job does need to be taken into consideration.
Nonexempt employees are subject to FLSA compensation requirements. In these cases, employees must be paid, at least, the federal minimum wage for each hour and be awarded overtime pay for at least 1.5 times their hourly rate for any hours that are more than 40 per week.
In essence, while exempt staff is expected to complete their assigned tasks, regardless of the hours required to complete the work, non-exempt employees must be paid overtime if they work more than 40 hours per workweek.
Non-exempt status does vary state-by-state, so you’ll have to check with your individual state’s Department of Labor to find out if your position is exempt or not.
Salary vs Hourly
Most jobs in the U.S. are governed by FLSA rules, regardless of whether or not the position is considered exempt or non-exempt. But there are factors to consider when negotiating pay or determining your future career.
If you work more than 40 hours in a typical week, working in a non-salaried or non-exempt position you’re likely entitled to overtime pay, according to the FLSA. If this is the case, your employer must pay you time-and-a-half above your normal hourly wage.
As it stands currently, all employees who hold positions that are eligible for FLSA coverage are entitled to overtime pay if they put in more than 40 hours of work.
By law, this includes an overtime rate of 1.5 percent the employees typical rate for work. But there are exemptions that are included.
“Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees,” according to the U.S. Department of Labor. “To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455* per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations.”
Benefits and Downsides
There are benefits and downsides to working in either a salaried or hourly position. Overall, you’ll have to determine which is right for you.
Hourly employees typically find it easier to separate their work and home life, which might enable them to devote their free time to hobbies, and other activities. However, should a company begin to struggle, hours are not guaranteed. This could lead to not only decreased pay, but also a loss of health care coverage, and an overall lack of job security.
In contrast, salaried employees generally have more consistent paychecks and more job security. While they may struggle to separate their work life from their home life, salaried employees do have the benefit of stable employment and paychecks. Under the FLSA, neither salaried nor hourly employees are guaranteed holidays off or increased pay when they work on federal holidays, so you would have to determine how a given employer handles scheduling and compensation for holidays case-by-case.
Overall, your own enjoyment and stability in the position you’re in depends on your career goals, and overall dedication to the position that you’re in.
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This post was updated August 14, 2018. It was originally published July 19, 2018.