What is the difference between hourly and salary employee

Learning about salary vs. Understanding the difference between a salary versus an hourly wage can help you choose the best position to suit your needs. Find jobs. Company reviews. Find salaries. Upload your resume. Sign in. This article has been approved by an Indeed Career Coach There are several differences between salaried and hourly positions.

Image description Salary Pay vs. Hourly Pay Salary Pay Pros 1. More career advancement opportunities Hourly Pay Pros 1. Some autonomy over your schedule Salary Pay Cons 1. Reduced availability for additional jobs Hourly Pay Cons 1. What is an hourly rate? What is a salary? The benefits and downsides.

Benefits of salary pay. Consistent paycheck. More benefits. Disadvantages of salary pay. Benefits of hourly pay. Overtime compensation. Opportunity for holiday pay.

Ability to dedicate time to other interests. Hourly employees protected by a union may be protected against some of these risks. There also are possible effects on eligibility for healthcare coverage.

Businesses with 50 or more employees are required to provide healthcare to full-time employees, who are defined as people working 30 or more hours, so some businesses keep hourly employees to fewer than 30 hours to avoid the mandate. There are pros and cons to being hourly versus a salaried employee, but for the most part the latter enjoy more benefits, such as paid vacation and sick days, retirement accounts, and other employer-sponsored benefits.

Hourly workers do not usually receive compensation in the form of paid leave by the companies who hire them and may be responsible for their own healthcare. On the other hand, hourly employees enjoy more autonomy and may be able to set their own hours. Department of Labor. Internal Revenue Service. Personal Finance. Career Advice. Business Essentials. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.

These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. How to determine if hourly or salaried employees are best for you. Salary vs. Hourly: What's Better for Your Business?

Ada Rannels, Contributing Writer. Overtime pay, and whether they are eligible for it, is one of the biggest factors in determining whether your employees should be hourly or salaried. Salaried and hourly employees vary in how they are paid and whether they are eligible for overtime. Salaried workers earn a preset sum each pay period that isn't determined by how many or few hours they work each week.

Hourly workers get paid a per-hour rate, so their paychecks are based specifically on the number of hours they work. This article is for new business owners trying to determine whether they should have hourly or salaried employees.

What is a salaried employee? Pros of salaried employees Since salaried workers are paid a flat rate, if they work more than 40 hours in a week, you will not need to pay them overtime. Cons of salaried employees Since salaried workers have a fixed income, there is a chance they'll work less than 40 hours in some weeks. What is an hourly employee?

Pros of hourly employees You are not required to make an hourly worker a full-time employee, which can offset the costs of benefits such as healthcare, paid time off and retirement savings plans. Cons of hourly employees If an hourly worker does work over 40 hours in a week, you are required to pay them overtime wages, which can become costly if the position requires a lot of overtime. What are exempt and nonexempt employees?

What is an exempt employee? They are a salaried worker. If an employee does not meet all three of these requirements, they must be nonexempt. What is a nonexempt employee? Classifying exempt as nonexempt Classifying an exempt employee as nonexempt usually does not result in any fines or penalties. Can you switch employees between salaried and hourly?

Making an hourly employee salaried You can convert an hourly employee to a salaried position as long as the worker meets FLSA and state laws that qualify them to be exempt. Making a salaried employee hourly While this is less common, if you reorganize your company or have less work for your employee than you thought you would, you may want to consider making them hourly. Determining wages from salaried to hourly When you change a salaried employee to an hourly position, you will need to determine a new hourly wage, which may be lower than their old salary if they will work more overtime.

How to determine if hourly or salaried employees are best for you There is no right or wrong answer when determining whether your employees should be salaried or hourly. What type of work will the employee be doing? Are there any relevant state laws to consider?

Do you want to include benefits in their employee package? Grow Your Business. In general:. 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 are also considered more secure. There can be disadvantages to salaried positions, such as demanding an employee to 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.