How do you determine if an hourly wage or salary is a better job offer? What if your employer wants to change your pay method from hourly to salary or vice versa?
It is tempting to use a 2080 hour work year (40 hours per week) times the hourly pay rate and compare that to the salary offer. Except it isn’t that easy. There are too many variables you need to consider to make a true apples to apples comparison.
In this article I will start with the basics (defining terminology and labor laws) and then put the pieces together in a useful way for you to choose the best offer for you.
What Is An Hourly Worker?
Hourly workers are paid for each hour worked. Hourly employees are considered “non-exempt” under the Fair Labor Standards Act (FLSA). More on “exempt” and “non-exempt” employees below.
Hourly workers must be paid overtime for hours worked in excess of 40 hours in a calendar week at a rate of at least 1.5 times their regular hourly rate.
The FLSA contains significant protections for “non-exempt” workers.
What Is a Salary Employee?
Salary employees are paid a set amount each pay period. A salary “non-exempt” employee gets paid a set amount each pay period and must receive additional compensation for overtime hours worked. An “exempt” salary worker does not enjoy the protections under the FLSA, which means they don’t qualify for overtime pay. The employer can still make overtime payments to exempt salaried employees, if desired, but it is not required.
Certain employees are always considered exempt from the FLSA? A bona fide executive, administrative employees, professionals, and outside sales employees are exempt. Job title does not determine the exemption. The employee’s specific job duties must meet all requirements. Some computer employees are also considered exempt.
What Is the Fair Labor Standards Act?
The FLSA is a federal law setting minimum wage and overtime pay, recordkeeping requirements, and child labor standards for the private sector, plus federal, state, and local governments.
What is an “Exempt” Employee?
Exempt employees under the FLSA include executives, highly-compensated employees, computer employees, administrative workers, and outside sales employees. Administrative, professional, and computer employees can be paid on a fee basis.
What Is a “Non-Exempt” Employee?
Workers paid a salary less than the salary basis requirement (listed below) are non-exempt. Hourly workers are always non-exempt.
Remember, you can receive a salary and still be considered non-exempt. Non-exempt employees are protected under the FLSA. That means you qualify for overtime pay if you work more than 40 hours in a week.
Non-exempt employees include the vast variety of hourly wage jobs. It should be noted that administrative assistants, police officers, firefighters, and paramedics are non-exempt.
What Is the Salary Minimum Wage?
Starting July 1, 2024, exempt employees minimum salary increased to $844 per week. A second increase was scheduled for January 1, 2025, increasing the weekly minimum for salary workers to $1,128 per week. However! As of this writing (December 30, 2024), a federal court in Texas struck down the increases. Therefore, the current minimum for salaried workers reverts back to $684 per week, or the equivalent of $35,568 per year.
What Is the Hourly Minimum Wage?
The current federal minimum wage is $7.25 per hour. The federal minimum wage has not changed since July 2009.
States have the authority to institute a higher minimum hourly wage and many states do. Each state can enact labor laws more strict than the FLSA, but never more lenient. The federal law is the floor.
There are alternatives to the hourly minimum wage worth considering. You can read more about these alternatives here.
What Are the Pros and Cons Of Salary vs Hourly?
Now we can pull the pieces together to see which compensation method is best for you.
The biggest pro of salary is the steady amount of wages each pay period. Regardless of the work level at your employer, salary employees enjoy a steady rate of income
The downside to salary are two-fold. First, the employer may pay a lower total salary versus hourly workers to compensate for possible slow times at the company. Second, exempt employees may find themself working exceedingly long hours without additional compensation. Remember, exempt employees get a set salary and are not entitled to overtime compensation. This is not an issue for non-exempt employees as they still get overtime pay.
What Is a Disadvantage Of Hourly Wages?
If work is slow at your employer the hourly workers go home first because the salaried employees get paid the same amount whether they stay or are sent home.
Whereas, the salary employee enjoys a set wage each pay period, the hourly worker has no such guarantees. Hourly workers get paid for hours worked. If you work fewer hours, you get paid less. There is no set minimum income floor for the hourly worker.
Often, hourly workers get laid off before salaried workers.
What Are 5 Drawbacks Of Receiving a Salary?
- No overtime. The comfort of knowing you will get paid a set amount each pay period is offset by no additional compensation if you work more than 40 hours in a week. Look no further than the financial industry to see salary workers putting in massive hours each week. There is always more work to do, but no additional compensation if you are an exempt salary employee.
- Low hourly rate. Once you consider all hours worked and adjust for overtime hours, the hourly equivalent rate of your salary might be low. It is a mistake to expect your salary to reflect a certain hourly rate based on fulltime hours and no overtime. As part of the hiring negotiation, you may wish to have a maximum number of hours of work per week in writing.
- Employer pressure to work more. When the company has more work it is cost efficient to send hourly workers home after 40 hours and push the remaining work on salaried staff.
- Employers may pick low salary requirement candidates. Often employers have a set hourly rate for certain positions. Salary positions usually come with a range. Employers may select candidates willing to work on the lower end of the range. It becomes a race to the bottom for the employee.
- Work/life balance. Just as the employer is committed to a set amount of pay each pay period, the salary employee is required to work hours convenient for the employer. That is why some employers prefer salary employees. Weekends, holidays, and evening can become victim of the employer’s demands.
I don’t want to paint salary as a bad option. Often, salary workers are on salary because of industry standards or expectations.
Of course executives will work longer hours. It’s expected. But what about jobs that blur the line? For example: Would you prefer an hourly pay rate or salary working in a tax office? It depends if a limit is placed on hours worked during the busy season. Each situation is unique. My hope is you look at all the factors and negotiate a position and pay rate that works for you.
Which Factor Is a Disadvantage Of Being Paid a Salary?
Whenever I work with clients negotiating a salary, they always focus on the steady pay rate. They really don’t believe the employer would work them into the ground or be unreasonable. But it happens all the time.
Almost every disadvantage of a salary comes back to no overtime pay. The employer naturally will want more from you as a salary employee. Every hour you work over 40 hours in a week costs the employer nothing additional. It’s not that the employer is bad. It’s natural to want to maximize the benefits to your business.
Negotiating an hourly wage job is much easier because there are fewer moving parts. Here is your hourly rate and the hours you work; your days off; paid holidays; vacation time; and benefits.
Negotiating a salary is much more involved. It is vital you discuss work/life balance, maximum hours required, weekends, holidays, and time off, before accepting the position. All terms agreed to need to be in writing. In writing! Good people can remember things differently six months or a year out. If you want the job position of your dreams you can’t allow oversight to put you in an uncomfortable position.
With salary jobs it is all in the details. Salary employees have significantly more commitments to the employer than an hourly worker.
Why Do Companies Prefer Hourly Instead Of Salary?
They don’t.
Instead, companies prefer hourly workers for many routine positions because the work available may change seasonally or with economic conditions.
Companies prefer salary employees for key positions. Companies view salary employees as long-term parts of the business.
Companies offer an hourly wage when they want the flexibility to send employees home when work is slow. This allows the business to cut costs when work is slow.
More Questions on Salary vs Hourly?
There are many factors when considering a new job. If the employer is offering a salary position it requires more work on your part to nail down details. One short article can’t cover everything.
If you have a situation you would like my opinion on, put it in the comments. I’ll give you my opinion and, if available, point you toward additional resources to help you decide.
