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Is becoming an hourly or salaried employee better?

Deciding which form of compensation is right for you can be challenging. Getting hourly pay and receiving a salary both have their pros and cons. Here's more information about why some jobs are salaried and some are hourly, the differences between these payment methods, and how to choose the best option for you.

Why some people get a salary and others get hourly wages

The Fair Labor Standards Act (FLSA) requires employers in the United States to give most employees time-and-a-half pay if they work more than 40 hours a week. This means some people are exempt from these rules, but most get hourly pay. However, if they work more than 40 hours per week, they can get 50% more per hour than they would normally. For example, someone who usually gets $10 per hour would receive $15 per hour on overtime.

According to the U.S. Department of Labor, to qualify as an exempt or salaried position, a job must pay at least $684 per week or $35,568 per year. It must also include certain duties, such as making sales or supervising others. Whether you want a salary or hourly position, you can help employers find you by uploading your resume.

The pros and cons of hourly pay

Here are some of the potential benefits and downsides of choosing an hourly job:

More pay when you work more

A nonexempt or hourly employee won't need to work late or come to work unexpectedly without additional payment. Work won't interrupt your free time, and you won't need to answer emails or texts or speak with customers on days when you're not at work. Getting hourly pay also means supervisors usually won't try to persuade you to do extra work without extra compensation.

Many employers offer double time for people who work on holidays, which is twice as much as normal pay. If you have a job that pays lots of overtime, you could make more than someone with a salary in a similar position.

Pay that could fluctuate

If an employer cuts your hours because business is slow, your check won't be as large as normal. Many people with hourly jobs have another part-time job or work as part of the gig economy to make sure they always have enough money to pay their bills.

Pressure to do jobs quickly

Managers sometimes try to conserve company labor funds by pressuring hourly employees to work faster. However, this can increase errors and even lead to injuries in fields such as construction and warehousing.

The need to keep track of your hours

People with salaries get the same amount of money no matter how long they work, so they don't have to track how much time they spend on the job. If you have an hourly wage, it can be a good idea to track the number of hours you work each week and which of those hours deserve overtime. That way, you can review your paycheck when you receive it and make sure it's the correct amount, with no errors. Remember that whether you get hourly pay or a salary, part of that money will go toward taxes.

The pros and cons of a salary

Salaries also have potential risks and benefits:

A steady paycheck and less control over your schedule in some circumstances

With a salary, most people get the same amount of money every week, making creating a budget easy. In some organizations, people might get less on weeks with holidays or when they take a vacation.

If you get a salary, it's the same no matter how much you work in most cases. If you finish all the tasks assigned to you, you can stop working early in many circumstances. Many organizations let people receiving salaries set their own hours or work from home part-time or full-time. However, companies can also require people with salaries to work more hours during busy seasons or staff shortages.

Even salaried employees who work 60 or 80 hours per week instead of 40 hours per week might not get extra compensation. Some employers might call salaried employees and ask them to work without much notice. Other employers that pay salaries offer performance bonuses or profit-sharing arrangements to help motivate their staff. However, these payments are usually not guaranteed.

Better benefits

Salaried employees are more likely to receive benefits such as:

  • Health care
  • Retirement contributions
  • Paid vacation time
  • Free lunches

While hourly employees can also get these perks, it's less common. The Affordable Care Act requires employers with 50 or more employees to provide health insurance, but the law has an exception for hourly employees who work fewer than 30 hours per week. Some companies save money by hiring mostly part-time employees and keeping their spending on employee health care low. When you apply for a new job, make sure you understand the benefits it offers.

People with employment contracts may have more job protection than hourly or salaried employees without them. In many states, both types of employees are considered at-will. This means employers can fire people in hourly or salaried positions without contracts at any time, without disclosing their reasons.

Choosing between hourly and salary pay

You can use Salary Search to find out whether a salaried or hourly position pays more for people with your career. Each form of compensation has its pros and cons, and which one is better often depends on the industry and your employer.

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