Salary vs Hourly: Everything You Need to Know
Employees become classified by salary vs hourly, and by the kind of work they do. 3 min read
Salary vs Hourly
Employees become classified by salary vs hourly, and by the kind of work they do. Laws and policies differ on how salaried workers and hourly workers are treated. A salaried employee is defined as a worker who receives a fixed amount of compensation paid weekly, bi-weekly, or monthly. An hourly worker receives an hourly wage for 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 becomes 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 time sheet 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 have compensation time 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 have been considered more secure.
Disadvantages of the salaried positions list as it can regularly demand an employee 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. Paid by the hour a set amount, they do not have a salary contract. Some contracts exist, but it has to do with union agreements with the company or working conditions. Most are paid for hours worked. An employer sets the number of hours. These workers use a time carded system or complete a time sheet which verifies the hours worked for payroll. On average, most hourly employees work 40 hours a week. Those who work less than 40 hours a week consistently 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 a 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, remaining 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.
Disadvantages of being an hourly employee have been if a business closes early or cuts back hours 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. Other criteria remain as for whether the position is exempt from overtime. The Federal and state laws favor paying hourly employees overtime 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, so they are considered salaried.
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