Is it Better to Get Paid Salary or Hourly?

Salary vs. Hourly Pay: Is one better than the other?

Most jobs in America have rules associated with them that are governed by the Fair Labor Standards Act. Based on these rules, jobs are categorized as either exempt or nonexempt. Exempt employees are Salary employees who do not receive overtime pay. Nonexempt employees receive overtime wages, which are 1.5 times your regular pay rate per hour. Overtime applies if you work more than 40 hours in a single workweek.

Exempt/Salaried Status

What criteria would designate you as an exempt employee? There are some variations in these criteria but, generally, you have to make at least $455 per week (which is $23,660 per year), be paid on a salary basis, and perform exempt duties. This is a crucial point. Exempt duties usually refer to management positions that require your discretion and judgment at least 50% of your work time.

Almost all management positions are categorized as exempt. If you are exempt, you are paid a salary. If you work additional hours (more than 40), your employer does not have to pay you overtime wages. This is true even if you work many more than 40 hours. You cannot negotiate whether your job is exempt or nonexempt. Federal and state laws determine it.

Every paycheck you receive will be the same. An annual salary is part of your terms of employment, and that’s how much you will receive while in the same job. If you are promoted or receive a raise, then your salary changes accordingly.

A salary has one major benefit, a sense of security knowing what you will receive on every check you get. Employers can reduce the hours of nonexempt employees at any time, but renegotiating the salary of exempt employees is more complicated, and a salary reduction is rarely made.

The negative part of being a salaried employee is that you have specific responsibilities and duties that must be completed even if you have to work longer hours and occasional weekends to complete them. This means your personal time may be impacted negatively for family events or personal hobbies.

Nonexempt/Hourly Status

If you are an hourly employee, you are paid for the hours you work. If your employer wants you to work more, they have to pay you more. Overtime is time and a half or 1.5 times your regular hourly rate (for example, if you earn $15 an hour usually, your overtime rate is $22.50 per hour). In some states, employers will pay double time for holidays. Always check with your employer before you start working at a job to understand the policies that affect you. Most employers of any size provide a handbook with policies and procedures noted and will address this issue in the handbook.

One potential benefit of being an hourly employee is if you receive a lot of overtime, you may actually earn more than your manager who is on a salary. Also, hourly employees often find it easier to have more home time. You can easily plan for regular activities that you know you will be available for.

The biggest disadvantage of being paid hourly is that your job is more vulnerable. When there are tough economic times for your industry or employer, they often cut hourly employees first or reduce your hours until things turn around. It is easier to do this than to cut salaried employees.

One other possible effect for hourly employees is your eligibility for health care coverage. Businesses with 50 or more employees are required to provide health care to people working 30 or more hours. Today, many businesses schedule hourly employees for fewer than 30 hours to avoid this requirement. This is very common in some service industries like the restaurant business.