You're looking for a new job and notice companies offering either salary or hourly compensation. Both options come with benefits and working conditions that seem great on paper, but you fear they might not meet your expectations in reality. To decide which roles to pursue, you find yourself asking: Salary vs hourly pay, which is better?
When it comes to work arrangements and compensation, there's no right or wrong answer—only what works best for each individual. Both salary and hourly pay have pros and cons that go beyond the amount deposited in your bank account. This includes whether you'll have benefits, if you're eligible for overtime pay, and what career advancements you can expect.
It might sound confusing at first, but once you understand how each agreement is structured, the correlation between your payment and other aspects of your employment starts to make sense. In this article, we'll explain the difference between salary and hourly pay and how to choose the best option for you.
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Salary vs hourly pay: differences
The biggest difference between salary and hourly wage is that salaried positions pay the same amount regardless of the number of hours worked, while hourly position payments vary depending on productivity under a given period.
But it doesn't stop there. Here’s a breakdown of the other key differences.
Salary pay
Salaries are annual fixed amounts paid to workers on a weekly, bi-weekly, or monthly basis, depending on state laws and company policies. Your salary is usually negotiated during the final stages of the hiring process when the employer is ready to make you an offer.
For instance, a software developer with an annual salary of $132,000 a year receives $11,000 per month (132 divided by 12, or $5,500 bi-weekly). Salaried positions are mostly full-time jobs where employees are expected to work a maximum of 40 hours a week, under the Fair Labor Standards Act (FLSA).
Since salaries are fixed amounts determined by contract, salaried employees are typically not eligible for overtime pay and get the same salary whether they work their full hours or not. “It's a fixed rate, whether they work 35 or 50 hours that week,” says Connor Hughes, an HR consultant at SMB Guide who’s certified in Strategic Human Resource Management (SHRM).
Hourly pay
An hourly wage is a fixed rate employees make per hour. Under this structure, an employee's payment varies depending on the number of hours they work under a given period. This rate is generally discussed during the job interview or hiring process, but it's also common for employers to disclose the hourly pay for a position in job listings.
If a waiter makes $12 per hour and works for 30 hours during a given pay period, their paycheck is going to be $360, which is 12 times 30. If they work more or fewer hours in the next period, their payment will change accordingly.
However, unlike salaried employees, hourly workers are eligible for overtime pay if their working hours exceed the maximum of 40 hours per week allowed by the FLSA. “Those extra hours get paid out at an overtime rate of 1.5 times the hourly rate,” Hughes says.
This means that for 41 hours and onward, that same waiter will get paid $18 ($12 x 1.5) for each extra hour. If they work 44 hours in a week, they'll receive a check for $552: $480 of regular pay ($12 x 40) and $72 of overtime pay ($18 x 4).
Hourly vs salary: pros and cons
Working in an hourly or a salaried position comes with advantages and disadvantages in both cases.
Salary pros
- Stable income: A fixed salary offers stability and predictability because you know exactly how much you'll receive at the end of each month, so you’re better able to budget and plan your expenses.
- Employment benefits: Salaried employees usually get perks like health insurance, retirement plans, dental insurance, and other benefits depending on the company. The Affordable Care Act (ACA) mandates that employers with 50 or more full-time employees offer health insurance.
- Work-life balance (sometimes): While it may not always be the case, salaried workers often can take hours or days off when necessary without the worry of being paid less, as many companies offer salaried employees paid time off (PTO).
- Career development: A full-time, salaried position usually comes with the prospect of career advancement. Some employers might offer stipends for professional development to retain skilled employees.
Salary cons
- No overtime compensation: A salaried employee usually doesn't get paid for overtime hours. If you need to work more than 40 hours a week to manage a big workload, there's no additional compensation.
- Inflexible schedule: Salaried positions often come with a predetermined schedule. In most companies, it's eight hours a day, from Monday to Friday, from 9 to 5. “The rigid schedules can make work-life balance tricky,” Hughes says.
Hourly pros
- Flexible schedule: Hourly positions allow workers to decide how many or few hours they'll work in a given period of time. For students, parents, or people with multiple jobs, this can be better for their routine.
- Overtime compensation: Employers are legally bound to pay hourly employees for the hours worked. So, if you work 30, 50, or 60 hours, you get compensated accordingly. In some instances, hourly workers are entitled to holiday pay if they're scheduled to work on a federal holiday.
- Schedule control (sometimes): Some employers may allow hourly employees to make their own schedules. However, they're allowed by law to decide schedules as well as the number of hours each employee works without notice.
Hourly cons
- Unpredictable income: Getting paid hourly means that your income depends on how many hours you're able to work weekly or monthly. This arrangement can hinder your ability to predict your income or follow a budget.
- No employment benefits: As Hughes says, hourly workers often get “the short end of the benefits stick,” and aren’t offered perks like health insurance or PTO. Federal laws don't mandate employment benefits for non full-time employees, so it's up for the employer to decide.
- Less work-life balance: Hourly employees' livelihood depends on the hours worked, which leads many to work extra hours or juggle multiple jobs to make ends meet.
- No career development: Some hourly positions are minimum wage jobs that don't foster professional growth, as employers may not see a benefit in investing in their employees' development.
Salary or hourly: which is better?
If you came this far, you've probably realized that salary and hourly pay have opposite pros and cons. The former has a strict schedule and no overtime pay, but a benefits package, stable income, and space for professional growth. The latter offers a flexible schedule, and compensation for overtime hours, but no benefits or income stability. So, which one is better for you?
That depends on your lifestyle, personal and financial aspirations. If you're at a place in life that makes it difficult to work a full-time job and you don't mind having an unstable income, an hourly position might be best for you.
“I often recommend hourly arrangements to people who need flexibility—students juggling classes, parents with kids at home, anyone with major commitments outside of work,” Hughes says. “It's also ideal for contractors or freelancers who bill clients per hour.”
In a field where working overtime is typical, you may also want to take advantage of the overtime pay. As an example, Hughes cites “healthcare with those crazy nurse schedules or restaurants and hospitality.” If you're gonna be pulling long hours anyway, you might as well get paid properly for it,” he says.
On the other hand, if you need a stable income, a predictable schedule, and don't have big responsibilities outside of work, a salaried position may be the better option.
“Salaried roles make a ton of sense for anyone who values security and predictability over everything,” Hughes says. “Think management positions, senior roles overseeing an entire department or team. You want those stable paychecks and nice benefits.”
Bottom line
Choosing between salary or hourly wage comes down to assessing your personal and financial needs. Both have advantages and drawbacks that you may or may not be able to endure, such as no overtime pay as a 9-to-5 employee or having little to no employment benefits as an hourly worker. Take the pros and cons of each prospect into consideration and choose the structure that better suits your current lifestyle and ambitions.
