What is the Difference Between Salaried and Hourly Employees?

Author Alan Bianco

Posted Apr 7, 2023

Reads 4.8K

Two Woman in Black Sits on Chair Near Table

When it comes to the workforce, there are two main types of employees: salaried and hourly. Understanding the difference between these two terms is essential for employers to pay their employees correctly and balance 2019 budgets. The terms exempt employees and non-exempt employees are also important to know as they relate to federal employment laws.

A salaried employee is paid a fixed amount of money for a set period, usually annually or bi-weekly, regardless of the number of hours worked. In contrast, an hourly employee is paid based on the number of hours worked and the agreed-upon hourly rate. It's crucial to calculate pay accurately for both types of employees because incorrect payments can result in legal disputes and financial losses for businesses. Employers must know how to pay employees correctly under federal employment laws, especially when it comes to exempt vs. non-exempt status. Understanding these concepts will ensure that employers classify their employees correctly and pay them accordingly.

What Determines if an Employee is Salaried or Hourly

The primary factor that determines if an employee is salaried or hourly is the type of work they do. Hourly employees are those who work a set number of hours each week and are paid for those hours only. An hourly employee works for 40 hours or less in a week, and any additional time worked above this limit qualifies for overtime pay as per federal law or state laws.

On the other hand, salaried employees receive a fixed amount of money for their work, regardless of how many hours they work. This means that salaried employees are not entitled to overtime pay unless otherwise agreed by their employer. The determination of whether an employee should be classified as salaried or hourly depends on various factors such as job duties, responsibilities, and education level required for the position.

1. Note

Note: Understanding the difference between being an hourly or salary employee is crucial. Hourly employees are paid based on the hours they work, while salary employees receive a set amount no matter how many hours they work. This can impact pay overtime and overall earnings. It's important to know your classification to ensure you're being compensated fairly.

2. What is a Salaried Employee?

A salaried employee is someone who is paid based on an annual amount called a salary, rather than an hourly wage. This means that the employee receives the same regular predetermined amount for each pay period, regardless of how many hours they work. Salaried employees are typically exempt from overtime pay and must pass certain tests, such as the salary basis test, to be considered for this type of employment contract. While their pay may be reduced in certain circumstances, salaried employees typically work a 2080-hour year and can enjoy more stable income than hourly workers.

3. What is an Hourly Employee?

An hourly employee is an employee who is paid based on the amount of hours they work. Hourly employees have a specific hourly amount they are paid and their employer determines their pay rates, benefits, and paid time off. Employers track the hours worked by using a time card system or other timekeeping method, which is verified to meet federal requirements. Week hourly employees who work a specific number of hours per week are considered part-time, while full-time hourly employees work a set number of hours each week and receive benefits such as health insurance and paid time off.

A Final Word on Salaried and Hourly Employees

When it comes to choosing between being a salaried or hourly employee, it's important to consider if the job description fits your lifestyle. If you're looking for a consistent paycheck and don't mind working extra hours without overtime pay, then being salaried may be the way to go. However, if you prefer to keep careful track of every hour worked and earn overtime pay for any extra hours beyond 40 hours per week, then hourly may be the better option.

YouTube video about A Final Word on Salaried and Hourly Employees

It's also important to note that there are minimum wage federal and state (whichever is higher) requirements detailed in the Fair Labor Standards Act (FLSA) accessed Feb 18, 2021. For hourly employees, keeping careful track of hours worked is crucial in ensuring fair pay. For salaried employees who meet certain part 541 exemptions outlined in the FLSA2001-3 letter accessed Feb 18, 2021, they are exempt from overtime pay but must still receive at least the minimum salary threshold set by the Department of Labor Wage and Hour Division.

Finally, employers should enhance site navigation and analyze site usage by clicking accept on electronic codes so that their marketing efforts can improve based on search behavior data. The labor final rule overtime update accessed Feb 18, 2021 allows more workers to qualify for overtime pay by raising the salary threshold for exemption from $455/week to $684/week. By understanding these regulations as both an employer and employee, we can all work towards a fairer workplace environment.

What are exempt and nonexempt employees?

Photo of Three People Smiling While Having a Meeting

What are exempt and nonexempt employees? Exempt employees are generally salaried workers who are exempt from overtime pay under federal law. Nonexempt employees, on the other hand, are hourly workers who are entitled to overtime pay for any hours worked over 40 hours in a workweek. However, just because someone is paid a salary does not necessarily mean they are federally exempt, as there are certain criteria that must be met to qualify for exempt status. Understanding the differences between these two classifications is crucial for both employers and employees alike.

1. What is an exempt employee?

An exempt employee is someone who meets the exemption job duty requirements set by the Fair Labor Standards Act (FLSA) at the federal level. Unlike hourly workers, salaried workers who are classified as exempt do not get paid overtime for time worked over 40 hours per week. This means that an exempt employee meets certain criteria and is not entitled to receive overtime pay.

2. What is a nonexempt employee?

A nonexempt employee is someone who is entitled to overtime pay for any hours worked beyond 40 hours per week, as mandated by federal law and additional state labor laws. This means that nonexempt workers must be paid for all time worked and may not be paid a salary in lieu of overtime pay. Exempt employees, on the other hand, are not eligible for overtime pay but are still subject to determining exempt status based on federal and state laws. Jobs that include contractors, freelancers, and interns may also fall under the category of nonexempt employees.

3. Misclassifying nonexempt employees

Small businesses must be careful when it comes to employee classification, as misclassifying nonexempt employees can result in the need to pay back wages. State laws mandate that certain employees be classified as exempt or nonexempt, and failure to comply with these laws can result in back wages being owed. Additionally, there may be additional daily fines for time frame failure or exempt employee misclassification.

Frequently Asked Questions

Is salary better than hourly?

It depends on your preference and job type. Salary offers stability and benefits, while hourly allows for flexibility and overtime pay. Consider your lifestyle and financial goals when deciding which is better for you.

Would You Rather Be salary or hourly?

It depends on personal preference and job type. If you value a consistent income, salary may be preferable. However, if you want to be compensated for every hour worked, hourly may be a better option.

What should my hourly wage be?

Your hourly wage depends on various factors such as your skills, experience, industry, and location. Research online or consult with a career counselor to determine the average hourly wage for your profession in your area.

Should you pay employees hourly or a salary?

It depends on the job responsibilities and the needs of your business. Hourly pay may be best for hourly workers, while salaried pay is often used for management positions. Consider factors such as overtime, benefits, and employee retention before making a decision.

What are the rules for paying hourly employees?

Hourly employees must be paid at least the minimum wage set by federal or state law, and they are entitled to overtime pay for any hours worked over 40 per week. Employers should keep accurate records of hours worked and pay rates to avoid any potential legal issues.

Featured Images: pexels.com

Profile photo of Alan Bianco

Alan Bianco

Writer at CGAA

View His Articles

Alan Bianco is an accomplished article author and content creator with over 10 years of experience in the field. He has written extensively on a range of topics, from finance and business to technology and travel. After obtaining a degree in journalism, he pursued a career as a freelance writer, beginning his professional journey by contributing to various online magazines.

View His Articles