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Salary or hourly wages: Which is right for you?

Sarah Sipek | March 26, 2021

Hourly vs salary

The differences between being a salaried or hourly employee and the pros and cons of both.

Compensation is a part of every job seeker's decision of whether or not to accept a job. Just as you have to consider the responsibilities of the job and the company culture, you must also consider the way you will be paid before accepting any position.

There are generally two options when it comes to compensation: salaried and hourly. Salaried employees are paid a set amount each year, while hourly employees are paid for the exact amount of time they work. Each has its pros and cons. To determine which form of compensation is best for you, consider the following:

FLSA exemption rules

Most jobs in the U.S. are governed by the Fair Labor Standards Act (FLSA). Employees whose jobs are governed by the FLSA are divided into two categories: exempt and nonexempt. Non-exempt employees are entitled to overtime pay, which is defined as time-and-a-half your pay rate if you work more than 40 hours in a single workweek. Exempt employees are not.

Exemption is currently determined by whether an employee makes at least $455 per week ($23,660 per year), is paid on a salaried basis and performs duties considered to be exempt. For example, if you perform any managerial duties, you are automatically exempt and your employer doesn't have to pay you overtime wages. You can't negotiate whether your job is exempt or nonexempt.

In May 2016, the Department of Labor (DOL) more than doubled the salary threshold for exempt employees to $47,467 and made other changes.

Benefits of hourly pay

Hourly employees are paid for the time they work, with no exceptions. If your employer wants you to work more time, they have to pay you for it. As mentioned earlier, the overtime rate is currently set at time-and-a-half your normal hourly rate, but many employers pay double time for holidays. It's not guaranteed, so if you choose an hourly position, make sure it's part of your contract. If you're in a well-compensated field with lots of overtime, you could make more than if you earned the same official pay on a salaried basis.

Hourly employees are also often able to achieve better work-life balance than salaried employees. They don't typically take work home with them because they won't be paid once they leave their job site.

Disadvantages of hourly pay

Being paid hourly can potentially make your job or income more vulnerable. If a company goes through tough times, your hours may be cut and your salary is not guaranteed.

Also, under the Affordable Care Act employers with 50 or more employees are only required to provide health insurance to employees who work 30 or more hours a week. Some businesses may cut employee hours to fewer than 30 per week to avoid paying for insurance.

Benefits of salaried pay

A salaried employee is paid regularly and at the same rate at each pay period. Regardless of whether you work 40 or 30 hours or if your company is closed for the holidays, you will be paid. And there's comfort in that consistency. Full-time salaried employees are also more likely to receive benefits, including health care, retirement contributions and paid vacation time.

Disadvantages of salaried pay

While hourly employees are often limited in the amount of time they work each week, salaried employees often work after hours or extra hours during the day regardless of how many hours they have worked that week already. There is no cap and no additional compensation for more work.

The bottom line

Each form of compensation comes with its pros and cons, but you may find that one works better for you. It's also important to consider your desired job field and the type of work you'll be doing before deciding whether salary or hourly pay will provide the fairest compensation for your efforts.

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