There are several aspects to keep in mind for both potential employees and companies before entering into an employment contract. For any employee, salary is one of the most important considerations within that contract. As HR Managers, it makes sense to dig deeper into salary as a factor for employee engagement

The salary structure is decided upon by employers before hiring candidates. Some employees may want to be paid by the hour, and others find a salary better. 

So, what are the differences between getting a monthly salary vs hourly payment? The following article will dive deeper into both payment structures for employees and companies. 

Salary vs Hourly Employees 

Salary vs hourly pay is quite different and varies from company to company and from employee to employee. The federal guidelines also differ for salaried vs hourly employees. Some companies may allow employees to choose between the two depending on the flexibility they want in their work hours and whether they want overtime or paid time off. 

Who Is a Salaried Employee? 

A salaried employee earns periodically based on a fixed annual pay. The frequency of this payment can be weekly, biweekly, or monthly. Most companies usually have a 40-hour workweek mandate. It means that a person can work 40 hours or more, but they will get paid the amount determined initially in their contracts. The employment contract stipulates the minimum work hours required. 

Salaried employees may work extra hours, overtime pay is not a common perk. But salaried employees do have additional benefits like paid time off, 401k retirement plan, and short-term disabilities. These benefit packages are usually different for different companies.  

Who Is an Hourly Employee?

To put it simply, an hourly rate is paid to hourly employees. It means that they can work for a certain number of hours and get paid for the exact hours they worked. They can expect payments at the same frequency as any salaried employee, but the amount varies depending on the number of hours they worked. They get the federal or state minimum wage rate – whichever is higher. 

Hourly employees also receive overtime pay equal to one and a half times their salary. The number of hours they work isn’t guaranteed unless there is a labor contract. Hourly employees may also get benefit packages, but it depends entirely on the company. They are also required to track the number of hours they work through a time tracking solution, which the company later verifies while making payroll. 

Hourly employees can work part-time or full-time. The pay rates and benefits that they receive in each case differ. 

Exempt vs Non-Exempt Employees

Salary vs hourly employees have different exemption criteria. Hourly employees are non-exempt employees. They get paid on an hourly basis, and they are eligible under the provisions of the Fair Labor Standards Act because of the nature of their work. 

But for salaried employees, the case is a bit different. They can be both exempt and non-exempt. If salaried employees get the minimum wage set by the FLSA, they may be exempt from overtime pay. But if the company pays them a wage lower than the federal minimum, they are non-exempt employees. 


Administrative employees are predominantly in people management roles. They exercise their judgment independently, without the interference of another person. Administrative employees keep the business running, and their operations are mainly in the field of education. Examples of exempt administrative employees are Human Resources and Benefits Management. 


Employees falling under this category have a job of an intellectual nature, and they exercise independent judgment and discretion. Qualified fields are accounting, teaching, architecture, and engineering. These employees use advanced knowledge in certain areas, and their work is different from manual labor. Some examples of such professionals are teachers, legal professionals, architects, medical professionals, etc. 

Employees in Computer-Related Occupations 

The employees under this category are hired as computer systems analysts or software engineers, and they have a salary higher than $684 per week or $27.63 per hour. Their job requires them to design, create, and modify computer programs. These employees are primarily engaged in skilled information technology roles.

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The employees who fall in this category have to interview, select, and train new employees. They also handle employee grievances and enforce discipline. They must direct the work of two or more full-time employees. Often they have the authority to hire, fire and promote employees. Their primary duty is the management of employees. 

Outside Sales

These employees work away from the company’s place of business. Their job includes sales, exchange, contract to sell, consignment for sales, or shipment for sale. They also promote the business, which may or may not be exempt, depending on specific circumstances. In this case, drivers who deliver products can be exempt. Several factors need to be considered for this exemption. For example, any contractual agreements related to the volume of products delivered should be considered. 

To read the linked blog to understand more about the difference between exempt and non-exempt employees

Salary vs Hourly Pros and Cons: Which One is Better? 

Is Salary Better Than Hourly? 

Pros of Salaried Employees: 

  • Hiring salaried employees makes it easier for the company to track pay because there is no fluctuation in payroll
  • Salaried employees have the advantage of benefit packages, which can include paid time off and child care leave
  • Employees may work more than 40 hours, but they will be paid only the predetermined amount
  • For employees, salaried positions tend to pay more than hourly ones
  • It helps employees predict their finances every month, and this can help take away any anxiety relating to finances 

Cons of Salaried Employees: 

  • Salaried employees don’t have the benefit of overtime pay
  • There is no compensation provided for extra hours worked. An inconsiderate manager can easily take advantage of this and make the employees work for long hours without rewarding their employees in any way. 
  • These employees have more responsibilities and they may have to cover for hourly employees taking time off
  • If employees miss goals, they don’t get a bonus; and any bonus they receive is taxable
  • Some salaried employees may find that they are being paid less than hourly employees working overtime

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Is Hourly Pay Better Than a Salary? 

Pros of Hourly Employees: 

  • Companies proactive schedule hours basis anticipated demand. It brings down costs and provides certain agility to workforce planning. 
  • Although overtime is expensive, companies can schedule additional hourly workers in such a way that no worker has to work overtime
  • The benefits provided to hourly workers are not as robust as those provided to salaried ones. This brings down costs too. 
  • The flexibility of hours is a two-way street and employees can benefit from having lesser work hours than their salaried counterparts. 

Cons of Hourly Employees: 

  • Hourly employees are generally blue-collar workers. This salary structure is only useful while hiring freelancers, contractors, entry-level staff or skilled labour. 
  • Staff working on holidays will have to be paid double 
  • Overtime is expensive and any scheduling issues can be quite expensive for the company
  • They aren’t as invested in the growth and future of the company because of the nature of their contract. 

Salary vs Hourly: Pay Calculation

Salaried employees vs hourly employees also have different ways to calculate their wages.

A salaried employee gets a predetermined annual pay.

As for hourly employees, they need to multiply the hourly rate by the number of hours they work. Hourly employees are entitled to overtime as well. Anything above their shift hours brings them one and a half times their regular pay.

When employees get a paycheck, irrespective of pay types, there are two main deductions. First is the tax liability, and second is their contribution to the Federal Insurance Coverage Act (FICA). FICA is a payroll tax that funds Social Security and Medicare.

Switching Employees Between Hourly and Salary Structures

If a company has more work, it may consider changing hourly employees to salaried employees. The company can cut down on the overtime pay and give the hourly employees additional responsibilities. Exempt vs non-exempt also makes a huge difference in this matter. In some states, employees are only eligible for an exemption if they get twice the federal minimum wage.

But, if there is little work for salaried employees, the company may consider changing them to hourly employees. The transition affects the employee’s contract because now the employee will receive overtime pay. The company will also need to consider benefits packages.

Both employees and companies need to do a thorough cost-benefit analysis before considering any switch in pay structures.

Salaried vs hourly employees have many differences, and they both have their own pros and cons. Salary vs hourly pay varies, and federal guidelines for salaried vs hourly employees are also different. Companies can easily make exempt employees hourly, but can they do the opposite?

Salary vs Hourly: The Steps to Transition 

  • Negotiate With the Employee – If the employee has asked for the salary vs hourly change, they have a salary in mind and have their reasons for doing so. The same is true for companies if they have asked for the shift. It is essential that the two negotiate the new work hours, work pay, and benefits packages. 
  • Change Pay – The company should make sure that the employee gets paid according to FLSA laws. 
  • Update Records – Changing between salary vs hourly is a significant transformation. The change needs to show in the employee records. If there is an HR department, the company should notify them about it. 
  • Update the Contract – The contract should be exhaustive and include all information about the employee’s pay, work hours, and any other aspect that has changed. 

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Salary vs Hourly: Some Important Things Companies Should Keep in Mind 

The company should be careful about the distinction between salaried employees and hourly ones. Salaried employees and hourly employees have different taxes. Any carelessness on the part of the company can result in them losing overtime or paid time off. It can have legal ramifications, and the company may have to pay fines for it. Every state also has different laws regarding minimum wages and overtime pay.

They should also be careful with exempt and non-exempt employees. Exempted employees should atleast get the minimum wage set by the FLSA, even if they aren’t entitled to overtime.

If there is an alteration in the job duties, the company should check whether the ‘exempt duties’ sit well with the employee. If not, the company can reclassify the employee as a non-exempt employee.

The Salary vs Hourly Pay Debate

Is an hourly pay structure better for an employee? 

Is paying salaries better for a company? 

These questions have unique answers based on several factors. Before making a decision, companies and employees have FLSA regulations and personal preferences to take into consideration. We’ve done our best to define all the laws and distinctions that can help you understand which salary structure is more profitable for companies and which one works better for employees. 

If you still have doubts, please do reach out to us @HarmonizeHQ and we’d love to help you with additional resources.