What's the Difference between Salary vs. Wage Employees?

When you begin to hire people for your business, you have to make some choices, like what roles to hire for and how much to pay people. 

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You also have to decide how to pay them. In other words, will you pay team members a salary or an hourly wage? 

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You may have heard the words salary and wage used interchangeably before, but they’re not the same thing. They’re two different ways of paying an employee, and the method you choose can affect whether you have to comply with certain labor rules, such as overtime pay.

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So, what’s the difference? Let’s take a look. 

Salary vs. Wage: What’s the Difference? 

A salary is when you pay employees the same amount each pay period regardless of how much they work. In contrast, a wage is an hourly rate you pay employees based on how much time they put in during a pay period.

What Types of Employees Earn a Salary?

Most salaried employees have full-time roles in their companies. Typical examples of salaried positions include: 

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• Education professionals (teachers, professors, and librarians)
• Accountants and financial advisors
• Engineers and software developers
• Business professionals (marketing, communications, and operations)
• Managers (business, sales, retail, and restaurant)

What Types of Employees Earn a Wage?

Employers often use wages to pay part-time employees, seasonal staff, restaurant employees, or gig workers (such as in construction). 

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Common types of hourly positions include: 

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• Restaurant waitstaff
• Bartenders
• Repair and maintenance workers
• Mechanics and technicians

Which Employees Are Eligible for Overtime Pay?

Both hourly and salaried employees are eligible for overtime at a rate of time and a half if they are non-exempt workers, which includes people who earn less than $684 per week (or $35,568 per year). 

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According to the Fair Labor Standards Act (FLSA), non-exempt workers:

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• Are supervised by higher-ups
• Have jobs that require them to do repetitive tasks and develop physical skills. Some examples include carpenters, manual laborers, craftsmen, electricians, etc.
• Earn under $684 a week or $35,568 a year

That said, some types of employees are known as “exempt,” which means some of the overtime or FLSA rules don’t apply to them. 

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Exempt employees typically meet one or more of the following requirements.

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• They work in executive, administrative, professional, and outside sales roles.
• They earn a salary higher than $684 per week or $35,568 per year.
• They manage other employees.
• They have influence over company policy, such as hiring and firing of other staffers.

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There are also exemptions to overtime pay for certain industries, including amusement parks, airlines, movie theaters, restaurants, and some agricultural businesses. 

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For a full explanation of FLSA exemptions, you can visit the Fair Labor Standards Act Advisor page.

Salary vs. Wage: A Working Example

Now, let’s look at some cases that compare salary vs. wage workers so you can get a better idea of how you should classify your team members.

Salaried Employee Example 

Let’s consider a full-time employee who works as a marketing manager for a small business. 

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They earn an annual salary of $55,200 per year, which their employer spreads over semi-monthly paychecks, giving them a fixed amount of $2,300 twice a month. Most weeks, they work the typical 40-hour workweek.

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Since they have a professional role and earn a salary higher than $35,568 per year, they’re exempt from the FLSA rules and are not entitled to overtime pay when they work more than 40 hours a week. 

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Let’s say their company has a busy month and they average 45 hours per week. Since they earn a salary, they’ll still get $2,300 on each paycheck despite the extra hours. 

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It works the other way, too. If there’s a slower month and they average 35 hours per week, they’ll still get their set amount of $2,300 on each paycheck. 

Hourly Employee Example 

For our hourly pay example, let’s look at a retail associate working part-time in a store. They earn $15 per hour and typically work 30 hours per week.

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Since they don't fall under any FLSA exemptions, they’re considered a covered non-exempt employee, meaning they’re entitled to earn minimum wage and overtime pay. 

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Say they pick up extra shifts during the holidays when the store gets busy and work 44 hours in one week. Their employer needs to pay them $600 (at the pay rate of $15 per hour) for the first 40 hours and at least $90 (at the pay rate of $22.50 per hour) for their four overtime hours, giving them a total of $690 for the week. 

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On the flip side, their pay will be lower when they work fewer hours in a week. If they only come in for 20 hours in a week, they’ll only receive $300 for that pay period.

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If you have multiple hourly rate employees, your payroll will fluctuate based on the number of hours each person works. 

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Accounting for these fluctuations can be time-consuming, but you can streamline your payroll process using software like Hourly that automatically tracks time and calculates payroll for hourly workers.

How Much Should I Spend on Salaries and Wages?

Employee pay is typically one of the more significant expenses of any business. Depending on your industry, your total payroll may account for 18 to 52 percent of your operating budget.

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Let’s see how that breaks down between salary and wage pay.

What’s a Good Salary? 

As of 2022, the average annual pay for salaried jobs in the U.S. is $54,132. But this can vary widely based on factors like your company’s location or industry and an employee’s education level.

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If you want to figure out what competitive pay means for your business, look at the average salaries for your city, state, and industry. You can also offer perks, such as employee benefit packages, on top of a salary to attract top talent.

What’s a Good Hourly Wage?

As of Sep. 2022, the average hourly rate for U.S. workers is $32.46. Like salary, average hourly rates vary widely based on industry, job role, and location.

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For instance, construction workers make an average of $35.04 per hour, while the typical retail worker earns $23.04 per hour.

What’s Better: Salary or Wage?

Salary pay is usually a good fit for full-time employees that work a typical 9-5, whereas paying people on an hourly basis may be more appropriate for part-time workers or employees whose schedules vary more from week to week. 

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Ultimately, how you pay your employees depends on your business’s needs, the nature of each job position, and employees’ preferences. The good news is that you don’t have to choose just one for your entire workforce! 

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As an employer, you can vary the payment type based on each job position. For instance, if you own a renovation business, you may have a full-time account manager who earns a salary and construction workers who get paid hourly.

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Let’s take a deep dive into the pros and cons of each wage type to help you make your decision.

Paying a Salary: Pros and Cons

Salaries are commonly used for full-time, long-term positions. Here are their advantages and disadvantages over hourly rates.

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Pros:

• Offer your employees a sense of security and consistency since your team members know how much they’ll make every pay period
• Don’t require a time tracking system
• Allow employees to work overtime without requiring you to offer overtime pay

Cons:

• Can cause dissatisfaction if employees are working overtime and not getting paid extra
• Can add to your business costs if you provide benefits
• Require you to pay the same amount, even during slow weeks

Paying Wages: Pros and Cons 

Most seasonal and part-time positions pay a wage instead of a salary. Here are the pros and cons of doing so.

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Pros:

• May not have to provide benefits (such as health insurance, paid time off, or retirement plans) to stay compliant and competitive
• Allow you to flex your workforce based on your business’s needs, such as hiring for more hours during busy seasons and fewer hours during slow periods
• A straightforward transaction that’s easy for employees to understand
• Give employees the flexibility to work part-time

Cons:

• May have to use paper timesheets, which can lead to a lot of errors 
• Can take more time to calculate wages since they can vary every week
• Harder for your employees to figure out the amount of money they’ll receive each pay period, making it more challenging for them to budget and plan

Finding the Best Payment Solution for You

When comparing hourly pay to salaries, there’s no option that’s always better. Salaries offer more consistent employee payments and can make running payroll easier. However, using an hourly wage rate can seem more straightforward to employees and lets you stay flexible.

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Now that you’re familiar with the differences between salary and wage employees, all that’s left to do is decide what works best for you and your employees. (And won’t it feel great to check this off your to-do list?)