Hourly pay is a rate paid for each hour worked. Overtime pay is 50% of the employee's base wage for hourly workers. A salary is a set sum of money that is paid for work regardless of the number of hours performed. Salary employees are not eligible for overtime pay. The Fair Labor Standards Act governs the type of pay an employee receives. Learn more about the two types of pay and how employers decide which type to provide their employees.

An Overview of Salaried vs. Hourly Pay

What makes you special? In general, an employee must earn at least $684 per week ($35,568 per year), be paid on a salary basis, and perform exempt responsibilities that require discretion and independent judgment at least 50% of the time. If you take on managerial responsibilities, for example, you are most likely exempt. This implies you can be paid a salary, and your employer is not required to pay you overtime earnings regardless of how many hours you work.

The FLSA prohibits you from negotiating whether a job is exempt or nonexempt. The duties you execute, not your job title, establish your job category.

What Is the Function of a Salary?

When you work for a salary, your paycheck is always the same amount. An annual wage is a contractual term that states how much you will be paid for the duration of your work or until the terms are renegotiated. It is an example of an implicit cost.

However, there may be a disadvantage. While salaried employees are paid a certain pay, they also have specified obligations and tasks that must be met or completed—even if that means working longer hours and on weekends on occasion. This can make it more difficult to separate work and personal time in some cases.

What Is the Process of Hourly Pay?

As an hourly worker, you are paid for all hours worked. Employers must pay you more if they want more of your time. Legal overtime is time and a half; some businesses may pay extra time for holidays, but this isn't required unless it's part of your job contract. If you work in a well-paid profession with a lot of overtime, you could make more than if you earned the same official pay as a salaried employee.

There is also a lifestyle component. Hourly employees, in general, will find it easier to separate home and work. After work, people can devote their time to family, hobbies, or a second employment.

Unfortunately, being paid hourly makes you more vulnerable. When rules change or the company goes through a difficult period, hourly employees are generally the first to suffer the effects. An employer would rather cut some of your hours until business improves than eliminate an entire salaried position. Some of these dangers may be mitigated for hourly employees who are unionized.

There may also be implications for eligibility for healthcare coverage. Organizations with 50 or more employees are obligated to provide healthcare to full-time employees, defined as those working 30 or more hours per week; however, some businesses limit hourly employees to fewer than 30 hours per week to evade the mandate.

In conclusion

There are advantages and disadvantages to being an hourly employee vs a salaried employee, however the latter generally enjoy additional perks, such as paid vacation and sick leave, retirement plans, and other employer-sponsored benefits. Hourly workers are often not compensated in the form of paid leave by the companies that hire them, and they may be liable for their own healthcare. Hourly employees, on the other hand, have greater autonomy and may be free to choose their own hours.