You might be wondering if there is a difference between salary and hourly hourly employees? There are advantages and disadvantages between hourly and salaried positions. Let’s look at the differences between salary and hourly.
How you manage your life and your career is sometimes determined by how much money you make and how you receive it. Salary and hourly pay are two of the most common means of compensating employees. But first, how do these two sorts of compensation differ?
For example, a salaried employee is sometimes ineligible for extra hourly pay or must be paid the minimum wage. An hourly employee, on the other hand, is paid the federal minimum wage and is entitled for overtime pay at the hourly rate.
How much money you make and how you get it might influence how you manage your life and work. Salary and hourly pay are two of the most popular forms of employee compensation. But first, how do these two types of pay differ?
A salaried employee, for example, may be ineligible for overtime compensation or must be paid the minimum wage. An hourly employee, on the other hand, gets paid the federal minimum wage and is eligible for hourly overtime compensation.
Salary vs. Hourly Rights
As an hourly pay employee, you have rights given to you by the Fair Labor Standards Act (FLSA). These FLSA rules include mandatory overtime pay for hours over the 40 hours per week and a minimum wage that an employee must be paid, which is determined by your state. The majority of salaried employees are exempt from these rights but must meet certain requirements first, including:
- Being ineligible to receive overtime pay.
- Have a minimum yearly income, regardless of hours worked.
- Performing FLSA outlined job duties.
Let’s take a closer look at FLSA laws.
What is a Salaried Employee and How Does Salary Pay Work?
When people labor for a salary, they are paid a set annual sum known as a salary. A salary is a set sum of money that an employee receives on a regular basis, regardless of the quality or quantity of the person’s work. Some salaried employees sign an employment contract.
Salaried employees are those that get the same amount of money on a regular basis, generally monthly. An annual wage is a contract that states how much an employee will be paid for the life of their job unless they renegotiate.
A salary check conveys a sense of security. Employers can easily lower the hours of a non-exempt employee, but renegotiating compensation is more difficult.
Employers pay wages based on a 40-hour work week, but employees might work fewer or more hours and still earn the same income.
These personnel are not eligible for overtime hourly rates since they have a set yearly income. Employers may pay their employees on a monthly, bimonthly, weekly, or biweekly basis.
The FLSA mandates that hourly employees are paid based on a federal minimum wage. These wages are determined by the state in which you are working. South Dakota has a minimum wage of $9.10, while Texas has a minimum wage of $7.25. Many companies with large amounts of employees will provide you with an online portal or physical time card to clock in when you start your work day.
There are certain circumstances where employers can pay you less than minimum wage, such as occupations that receive tips. States set minimum cash wages for these types of occupations. The minimum cash wage in Texas is $2.13, while in South Dakota, it is $4.65. While salary positions don’t receive a minimum wage per hour, most states require that they make at least $455 per week.
To be eligible for overtime, an employee must work a predetermined number of hours every week. Most states have overtime rules that require employees to work over 40 hours per week for employers paying overtime. If an employee works more than 40 hours in a week, they are entitled to overtime pay of at least 1.5 times their normal hourly rate for every extra hour worked. For example, if you make $10.00 an hour, your hourly overtime rate is $15.00. What’s great about this is you’re not tied to a set amount of hours. If employers allow it, many employees will try to work lots of overtime to increase their pay. This way if you need more money for a holiday or vacation, you can make more than your normal annual amount.
However, salaried employees are not eligible for overtime pay. They are being paid to do a job until it is complete, regardless of the number of hours it takes. They could work 50 hours one week and 30 the next, but they get paid the same amount.
Salaried employees are required to perform what is called high-level jobs as determined by the FLSA before they can be exempt from their rights. Some of the job duties defined by the FLSA include:
- Managing two or more employees regularly
- Participating in interviewing and hiring new employees
- Setting the pay rates, hours, and job responsibilities of other employees
- Delegating work
- Ensuring safety in the workplace
To be exempt, these job duties must be part of the employee’s primary role. An employee can be salaried as long as wage requirements are met, but if they do not have high-level job duties, they are not exempt. Meaning they still have their rights in accordance with the FLSA. In short, salaried employees are not limited to management, but exempt employees are.
The Advantages and Disadvantages of Salary and Hourly Pay Stubs
Salary and hourly employees have distinct advantages and disadvantages. A paid employee, for example, may benefit from perks such as monthly payments and employee incentives, which can boost their overall job happiness, productivity, and performance. An hourly employee may not be eligible for any of these benefits.
As we discuss the advantages, we must also discuss the disadvantages that may influence your selection between desired salary and hourly compensation. Understanding the distinctions will also assist companies in determining whether to hire hourly or salaried personnel.
Pros of Salary Pay Stubs
Some advantages of salaried pay over hourly pay stubs include:
- Eligibility for more advantageous benefit packages: Although some hourly professions provide excellent benefits, salaried employees frequently receive more compensation and benefits than their hourly counterparts. Better incentives, healthcare coverage, retirement plans, paid time off and sick days, and 401(k) contributions are examples of such advantages.
- Potentially higher income: As previously stated, your comparable hourly earnings must be greater than the federal minimum wage to qualify as an exempt salaried worker. While some hourly workers earn a lot of money in specialized fields, the higher-paying jobs are salaried.
- More flexible working hours: Salaried employees are paid a specific amount on a monthly or yearly basis, allowing them to take time off and return to work later. Employees may work when they are in the right state of mind, which results in greater output.
- Employees receive regular pay checks based on the payroll schedule because of how salary pay works. Because they don’t have to predict how much their company will pay them at the end of the month, these employees enjoy the peace of mind that comes with salaried jobs.
Though pay positions give far more financial future, the salary vs. hourly wage debate is not without its detractors. Here are some disadvantages of salary pay:
- Ineligible for overtime pay: Even if salaried employees work more than 40 hours a week, they are not eligible for overtime pay. However, if the employee fails to satisfy all of the requirements of the exempt employment, he may be able to work around it.
- Poor work-life balance: Some companies need a paid person to be accessible and available anytime an urgent call, email, or text is received, even if they are not on the clock. This experience may be difficult in the long run, resulting in stress and burnout with little time for life outside of work.
- Work may extend beyond working hours: When businesses have critical tasks to complete in a short amount of time, they may need their staff to work extended hours, including weekends. In most circumstances, such overtime hours are not compensated. Employees on a salary may also try to push themselves more than normal in order to stand out among their peers.
How to Calculate Gross Income
There is little difference between a salary and hourly paystub. The main difference is in how the gross pay is calculated. Gross pay is the amount earned before any deductions and taxes are taken. The amount remaining after taxes and deductions are the net pay.
To calculate the hourly gross pay, simply multiply the number of hours worked by the hourly wage.
An employee works 40 hours at a rate of $10 per hour
40 hours x $10.00 per hour = $400 gross pay
An employee works 50 hours at $10 per hour
40 regular hours x $10 per hour = $400 regular gross pay
10 overtime hours x $15 per hour = $150 overtime gross pay
$400 regular gross pay + $150 overtime gross pay = $550 total gross pay
To calculate salary gross pay, divide the total yearly salary by the total number of pay periods.
Weekly Pay Period Example:
The employee makes $40,000 per year
$40,000 annual salary / 52 pay periods = $769.23 weekly gross pay
Bi-weekly Pay Period Example:
The employee makes $60,000 per year
$60,000 annual salary / 26 pay periods = $2307.69 bi-weekly gross pay
Why You Should Track Hours for Salaried Employees
While salaried employees don’t get paid hourly, it is still important to keep track of their hours. Tracking the hours of a salaried employee helps to evaluate the workload. This way, you can make adjustments as needed, so they are not under or overworked. It holds the employee accountable for their work and keeps them productive. Tracking hours also helps with client billing and avoiding FLSA wage and hour lawsuits.
It is a good idea to include the hours tracked on the employee’s paystub. This way, you are both in the know and on the same page.
Generate Your Own Paystubs
Whether you have a salaried or hourly employee, you can easily use our pay stub generator to create accurate and authentic paystubs at a low cost. We make the process easy. All you have to do is enter the information, preview the paystub and ensure you didn’t make any errors, and download your paystub. That’s all there is to it!