What is a salary or hourly wage paid to an individual?

Salaried employees earn regular paychecks, even if they work long days during busy periods, while hourly wage employees are paid according to how many hours they work, and they may be eligible for overtime pay when they work beyond the standard 40-hour workweek.

Key Takeaways

• Hourly pay may allow employees to work overtime hours, but they can also see pay cuts if they aren't able to work as many hours in a week as they expected.
• Salaried employees enjoy consistent paychecks, and they're more likely to get comprehensive benefits packages, but they may be pressured to put in extra work without overtime pay.
• Assessing your working style and the office culture can help you decide whether hourly or salary pay is better for you.

What's the Difference Between Salary and Hourly Pay?

According to a Department of Labor doctrine known as the Fair Labor Standards Act (FLSA), hourly employees eligible for overtime are classified as "non-exempt," while hourly workers ineligible for overtime pay are classified as "exempt." According to the U.S. Department of Labor's Wage and Hour Division, employees considered "exempt" must satisfy the following requirements, depending on the type of exemption:

• They must earn at least $684 per week (a salaried equivalent of $35,568 per year).
• They must work in an executive, administrative, professional, computer, or external sales position.
• They must have the authority to make significant decisions independently.
• They must have the discretion to create and implement company policies.
• They must occupy management roles, where they oversee other staffers.

Note

Employees who are considered "non-exempt" are protected by FLSA regulations concerning minimum wage and overtime compensation.

Non-exempt employees are entitled to collect time-and-a-half (1.5 times their regular hourly pay rate) for every hour worked over the standard 40-hour workweek.

Such non-exempt workers are responsible for recording their hours worked.

Which Is Right for You: Salary or Hourly?

To figure out whether salary or hourly pay is right for you, consider these factors.

When Hourly Pay Works Best

Hourly employees can significantly ratchet up their weekly pay by lobbying for extra hours. After all, employers naturally wish to give additional hours to their hungriest staffers. Furthermore, some hourly employees have the fortune of working for companies that pay employees double their regular hourly rate for working on holidays.

Salaried employees are not eligible to collect overtime pay when they work weekends and late nights to accomplish major projects. Furthermore, the office culture may pressure salaried employees to overextend themselves in order to compete with colleagues. In other words, salaried jobs can be significantly more stressful than hourly jobs.

When Salaries Work Best

Salaried employees enjoy the security of steady paychecks, and they tend to pull in higher overall income than hourly workers. They typically have greater access to benefits packages, bonuses, and paid vacation time.

Some companies keep costs down by disallowing hourly employees from working overtime. Hourly employees can sometimes fall short of their traditional 40-hour workweeks if business is slow and they are dismissed early. Hourly employees seldom enjoy the bonuses, insurance plans, and retirement plans that are traditionally afforded to salaried employees.

The Bottom Line

Whether a worker prefers an hourly position or a salaried position largely depends on his or her temperament and personal working styles.

While some workers favor the security of a regular paycheck, others prefer knowing when they'll clock out at the end of the day and delight in earning extra pay for working overtime hours.

Frequently Asked Questions (FAQs)

Is it better to get paid hourly or salary?

Hourly pay isn't necessarily better or worse than salary pay. Each person has to decide what's the best fit for them. Your temperament, work preferences, and the company you work for will help determine whether you should seek hourly or salary pay.

What is a decent salary?

The mean annual wage for all workers in the U.S. was about $58,000 in May 2021. That could be considered the baseline for a "decent" or "average" salary, though the real average salary will depend on where you live and what you do for work.

Depending on the type of work you do, there are two main ways you can get paid: with a salary, or an hourly rate. If you’re a salaried employee, you’ll be paid a fixed amount of money from the company you work for. You’ll generally have agreed on your annual salary at the time you sign your employment contract, and it is most often paid out to you in equal installments over 12 months. 

If you’re paid an hourly rate, however, you’ll have a rate applied to each hour you work. In this case, how much money you receive is based on how many hours you work. Keep reading to learn more about salary vs. hourly pros and cons. 

 Salaried employee vs. hourly pay—what’s the difference?

 As a salaried employee, you’ll receive an annual salary—a consistent sum of money delivered to your bank account, typically monthly or semi-monthly. The amount you’re paid and the number of hours you work will be stated in your employment contract. Hourly pay, on the other hand, is when you’re paid for every hour you work—so the more hours you work, the more you’ll get paid. 

Salary vs. hourly pay—pros and cons

Choosing between salary vs. hourly pay isn’t always easy, and will depend on your individual circumstances. Some people like the security of regular payments, so salaried employment works better for them. Others might prefer a more flexible approach, which hourly pay can allow for. We’ve outlined the main differences between hourly and salary pay below and the pros and cons of each.

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Pros of salaried pay

• The amount of money you’re paid each month is not decided by the number of hours you work—this helps when you’re creating a budget and planning to pay your bills.
• You’ll receive an agreed-upon amount of paid holiday allowance and sick days to use each year, which will be outlined in the contract.
• In addition to your salaried pay, you’ll often have access to other benefits like healthcare and pension schemes—great benefits of salary vs. hourly pay
• Permanent salaried employees are often given more trust and responsibility, which can bring more opportunities to progress in your career.

Cons of salaried pay 

• As an employee, you deliver work in exchange for your annual salary. You might be required to work more than your contracted hours to do this, but your employer won’t have to pay you extra.
• There might be less flexibility when it comes to taking annual leave, because you have to fit your holidays around other employees and work commitments.
• Working for a company means it might be tricky to work for anybody else. If you’re looking to change jobs or take on extra work, you need to manage this around your current employer and check if you’re allowed to accept other work under your current contract.

Pros of hourly pay

• You’re paid for every hour you work and are eligible for overtime pay if you work more than your contracted hours.
• Hourly work could offer you an opportunity to earn more money over a shorter period by working overtime.
• There can be increased flexibility, meaning you can adjust your work/life balance to fit around your interests.

Cons of hourly pay

• Budgeting can be more difficult because your income will depend on the availability of your work.
• Holidays and sick days are unpaid.
• There isn’t a set amount of guaranteed hours each week/month and if hours are cut, you’ll earn less. 
• There’s generally no access to any of the additional benefits that you have with salaried work. 

How to calculate annual salary from hourly wages

Calculating your annual salary from your hourly wages is usually pretty simple. Start by figuring out how many hours you work on average per week—for example, 30 hours. You then need to multiply this number by your hourly rate—e.g., €28.50—which gives you €855 a week. Then, multiply this by the number of weeks you work a year. If you work 48 weeks, this gives you an annual salary of €41,040. Remember that if you work any overtime, this will add to your overall total.

How to convert your salary to hourly wages

 If you want to know how to calculate hourly rate from your salary, use the same numbers as above and do the formula in reverse. For example, let’s assume you work 30 hours per week and your annual salary is €41,040. To figure out what your hourly rate is, divide your salaried pay by 1,440 (30 hours x 48 weeks). This would give you a rate of €28.50.

Is it better to get paid hourly vs. salary?

Choosing between being a salaried or hourly employee will depend on how much security you want when it comes to your income. The following points are good to consider when you’re deciding between hourly vs. salary:

• Stability. Do you need the stability of a regular income? It may be that you have set outgoings each month, in which case a salary may be best for you. However, hourly pay often allows for you to work extra hours if needed. This could help with any unexpected payments or if you’re saving for something special.
• Flexibility. If you need to be flexible with how much work you take on and the hours and days you work, hourly paid jobs can often offer more of this. Jobs with a salary will typically need you to request any time off and will only allow a certain amount of time off per year.
• Benefits. Salaried jobs usually provide you with a benefits package including paid annual leave, a pension, or bonuses.

 Whether you have an annual salary or are paid hourly, being able to create a monthly budget is an important part of taking care of your financial health. At N26, we offer a free bank account that can help. Paying your salary into this account gives you access to smart features like Statistics, which automatically categorizes your spending to help you better manage your money. Discover all the features of our bank accounts and sign up today.

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How to calculate hourly rate from salary?

The easiest way to calculate hourly rate from salary is to take your annual salary figure and divide it by the number of agreed hours you will work in a year. For example, imagine you earn €42,500 a year and are contracted to work 35 hours a week, over 52 weeks—or 1,820 hours. The sum for your hourly rate would be: €42,500 ÷ 1,820 = €23.35.

What is a salaried employee?

A salaried employee is someone who works for a particular company in a certain role, and is paid a salary for that role. Although it’s generally referred to as an annual salary, their payments are usually divided into 12 or 24 installments throughout the year. The amount they receive in their bank account will have already had deductions such as taxes or pension payments taken out from the total. Learn more about what a salary is and how it works.

What is an hourly employee?

An hourly employee is a person who is paid for every hour they work for a company. Hourly wages are a set amount of money paid daily, weekly, or monthly. The amount you earn for the week can be calculated through a simple equation. Just multiply the number of hours worked by the hourly rate you’re paid. For example, €28.50 an hour for 30 hours a week = €855 a week.

Is annual salary the same as annual income?

Annual salary and annual income have different meanings. An annual salary is a figure you will see when applying for a job or in your employment contract. It’s a financial amount that covers the work you do for the whole year. Your annual income is how much money you have to spend on living expenses once taxes and any other deductions have been made from your salary, along with any additional income sources. This could include things like benefits, interest from savings accounts, or additional earnings from rental properties or freelance work.

What is gross pay vs. net pay?

Gross pay is the total amount of money you’re paid before any taxes or deductions are made. It’s often used by banks as an indicator of your financial position, if you apply for a loan or credit card. Once taxes have been deducted, there will be another figure on your payslip—your net pay. This amount is what you will actually receive into your bank account, and is the figure you should use for budgeting.

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