Differences Between Salaried and Hourly Employees

The differences between salaried and hourly employees are outlined by different laws and policies. Employees are classified by salary versus hourly and by the kind of work they do. A salaried employee is defined as a worker who receives a fixed amount of compensation paid weekly, biweekly or monthly. An hourly worker receives an hourly wage for their services. Federal and state employment laws require a classification of salary or hourly.

What is a Salaried Employee?

Though an employee paid by salary receives payment weekly, the monetary amount determining the weekly pay is annual. This annual amount is divided between pay periods the company determines for that year according to the 2,080-hour ruling. When hired, a salaried employee receives a contract stating the amounts and time of payment. In general:

  • A salaried employee does not fill out a timesheet or track their time.
  • A salaried employee may work more than 40 hours or less than 40 hours and the salary remains the same unless the employer makes special conditions.
  • Salaried positions offer more job security in most industries and often have opportunities for advancement into higher paying management positions.
  • Often benefits like 401(k) come with the position.
  • Salaried employees may or may not be exempt from overtime (extra pay for extra hours).
  • Alternatively, these employees may be compensated by benefits instead of additional pay.

Benefits and Disadvantages of Salary Pay

Having a salaried position often gives a worker higher status. It entitles a worker to a set of benefits hourly workers do not receive, such as bonuses and annual raises. Salaried positions are also considered more secure.

There can be disadvantages to salaried positions, such as demanding an employee to work more than 40 hours a week. It may even require working holidays with no extra pay. Once a salary becomes accepted, renegotiating it becomes more difficult, and often an employee has to change positions to get a higher salary. Salaried workers are often exempt from overtime under the Fair Labor Standards Act.

What is an Hourly Position?

Hourly employees have a different setup. They are paid a set amount by the hour. Some contracts exist, but it has to do with union agreements with the company or working conditions. In general:

  • Most are paid for hours worked.
  • An employer sets the number of hours.
  • These workers use a time carded system or complete a timesheet which verifies the house worked for payroll.
  • On average, most hourly employees work 40 hours a week.
  • Those who work less than 40 hours a week usually classify as part time.
  • Different pay rates, time off, and benefits exist for a full time and part time in a company.
  • Schedules vary as well but are set by the employer.
  • If hourly employees work more than 40 hours per week state law and the Department of Labor requires those workers be paid overtime in most industries.

Benefits and Disadvantages of Hourly Work

Hourly employees often get double wages for working holidays. In some industries, being paid hourly and receiving overtime pay results in a higher annual wage than salaried workers who work the same hours. Hourly employees may or may not have additional benefits. In most cases, an employer that has 50 full-time employees will have employer sponsored health insurance. Even workers who work part time may be eligible for the insurance.

There are a few disadvantages of being an hourly employee. If a business closes early or cuts back hours, however, an hourly worker will receive less pay. If laws change or the company has a turbulent time, often hourly employees become impacted first as in laid off or fewer hours. Less opportunity may exist for training or advancement.

What Determines if an Employee is Salaried or Hourly?

A combination of laws and employer policies determine a salaried or hourly classification on a position. The distinction often becomes based on the kind of work done in a position. The Federal and state laws favor paying hourly employees over time while other laws favor other compensations such as benefits, or compensatory days for salaried positions. Professional trades, managers, and supervisors often are exempt from overtime and are therefore considered salaried.

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