Hourly vs. salary: Pros and cons

When it comes to pay, compensation for employees has benefits and drawbacks beyond just the numbers on a paycheck. While hourly employees make a set amount of money for every hour they work, salaried employees make the same amount each month no matter how many hours they work. Salaried jobs usually come with more security, flexibility, and status. However, hourly workers are eligible to make time-and-a-half pay for working more than 40 hours per week.

Both hourly and salary jobs have pros and cons, and you need to consider the specifics of positions to determine which is more advantageous for an employee. Keep reading to understand why some jobs are paid hourly and others stick to salary, plus learn how to determine whether hourly or salary is better for you.

Why are some jobs hourly and others salary?

Employers don’t decide which jobs are eligible for overtime pay and which aren’t. Those rules are spelled out in the Fair Labor Standards Act (FLSA), which was passed in 1938 to protect workers. The FLSA requires U.S. employers to pay most employees time-and-a-half pay if they work beyond 40 hours a week. That means employees must keep track of the number of hours they work and be paid on an hourly basis.

However, some positions are exempt from the FLSA and overtime requirements, including executive, administrative, professional, outside sales, and certain computing positions. To qualify as exempt, a position must meet certain stipulations. According to federal rules, it must pay at least $455 per week ($23,660 per year) and include certain duties, such as supervising at least two employees or making sales away from an employer’s office. (Some states, including New York and California, have stricter guidelines.) Exempt positions are paid on salary and not eligible for overtime pay.

Hourly pay: Pros and cons

Jobs paid on an hourly basis are often called non-exempt positions, meaning they’re not exempt from the FLSA or overtime laws. Fifty-nine percent of the U.S. workforce is paid on an hourly basis. Common hourly jobs include customer service work, retail jobs, skilled trades, technical and clerical work, inside sales, and production work.

Many workers who punch a time clock dream of moving into a salaried position, but hourly pay has advantages. Because companies must pay non-exempt workers time-and-a-half for overtime work, employers usually limit how many hours these employees work.

Working 40 hours or less a week may help hourly employees avoid burnout. Unreasonable workload and too many overtime hours are two of the top contributors to employee burnout, accounting for 64 percent of cases in one study. Moreover, when hourly employees are required to work overtime, they’re compensated well for it.

On the downside, hourly work often comes with unpredictable schedules and less flexibility. In some instances, hourly employees don’t get paid if they’re not at work, making it difficult for employees to take time off for doctors’ appointments or family obligations. However, some employers provide sick and personal leave to all employees.

Salary jobs: Pros and cons

Salary jobs come with the benefit of knowing exactly how much you get paid week after week. Salaried positions tend to pay more than hourly positions and many come with better benefits, retirement plans, vacations, and bonuses. Salaried workers often have more flexibility and can usually leave work occasionally if needed for medical appointments or family obligations.

On the downside, salaried employees don’t get paid more for overtime work. Thus they may be expected to work longer hours. Some workers who advance to salaried positions find they get paid less per hour than they did as hourly workers because they work so many additional hours.

Weigh your options

To determine whether hourly or salary is better, evaluate the entire package offered with individual positions.

First, calculate the hourly rate of any salaried position you’re considering by using this salary-to-hourly calculator:

• Subtract the number of weeks of vacation you’ll get from 52. This is the number of weeks you’ll work per year. (Example: 52 – 2 = 50)
• Multiply the number of weeks you’ll work by the average number of hours you expect to work each week. This is the average number of hours you’ll work per year. (Example: 50 x 50 = 2500)
• Divide your annual salary by the number of hours you’ll work annually. (Example: $45,000 / 2500 = $18 per hour)

This calculator will help you compare salaried positions with hourly ones. Also take into account the benefits, bonuses, and retirement packages offered with different positions. By comparing the specifics and considering total compensation, you’ll determine whether hourly or salary is more advantageous for you.