January 28, 2025

Salary vs. Hourly Pay: What Are the Differences?

Employers face a critical choice when building out their workforces. Should employees be paid a salary or an hourly wage?

Salaried employees earn a fixed annual income regardless of hours worked, while hourly employees are paid based on how much they clock in.

Choosing to give a salary versus hourly pay might sound like a minor detail, but it sends a ripple effect that stretches far beyond how you cut monthly paychecks. Both pay structures impact everything from the talent you attract to the complexities (and cost) of payroll management.

Here’s a guide to the differences between hourly and salary pay, the pros and cons of each, and how to decide which option aligns best with your business.

What’s a salary?

A salary is a fixed wage that an employee earns over a set period, typically annually. Employers pay out an annual salary over a consistent, agreed-upon schedule, such as semi-monthly, biweekly, or monthly. Salaried employees earn their wages regardless of the number of hours they work, which means their income doesn’t fluctuate even if their work schedules do. If they work overtime, they don’t get extra pay.

Under the Fair Labor Standards Act (FLSA), employees must meet certain requirements to be exempt from overtime pay. Typically, this is defined by salary. Any worker who earns over $684 per week on a salary basis is an exempt employee. Additionally, exemptions are typically granted to employees with specific job duties, like executive, administrative, and professional roles.

This exemption underscores the trade-off of salaried jobs. While they offer predictable compensation, employers sometimes expect employees to work extra hours per week when necessary without getting paid more.

What’s hourly pay?

Hourly pay is a wage structure in which employers pay workers for each hour they work at a set hourly rate. Unlike salaried employees, hourly workers’ overall income varies depending on the number of hours they clock in during a specific pay period.

Under the FLSA, overtime nonexempt workers are similarly defined by salary and job roles. Employees who make less than $23,600 per year (or $455 per week) and don’t perform executive, administrative, or professional roles are considered nonexempt.

Nonexempt workers are entitled to the federal minimum wage and overtime pay for any hours worked beyond the 40-hour workweek. Most often, workers get paid 1.5 times their regular hourly wage as overtime. While this protects fairness and employee satisfaction, it can make payroll management complex, requiring employers to carefully track the hours of all their employees.

Salary versus hourly pay: 5 differences

How does salary pay work compared to hourly? Let’s look at five important distinctions.

Pay consistency. Salaried employees receive a fixed paycheck on a regular schedule. Hourly workers’ pay varies based on the number of hours they work in a given pay period. Employers are responsible for paying both hourly and salaried employees on a regular, agreed-upon schedule — it’s the amounts on every check that change.
Overtime eligibility. Hourly employees are usually entitled to overtime pay under the FLSA for working more than 40 hours in a single workweek. Salaried, exempt employees generally don’t receive overtime compensation.
Benefits and compensation packages. Employers aren’t universally required to provide benefits to their employees. Federal and state laws do outline certain benefits, so it depends on the area, size of company, and type of employee. Salaried positions often come with additional perks like health insurance, paid time off, and retirement benefits to provide extra financial stability and compensate for roles with more responsibility and tougher schedules. Hourly employees tend not to receive the same perks, although this varies from employer to employer.
Scheduling flexibility. Hourly positions usually have more flexibility with their work schedules. In some industries (like retail or hospitality), it’s common for schedules to change based on demand or availability, allowing employers and employees alike to schedule fewer hours or pick up extra shifts when necessary. Salaried positions often have more rigid schedules, with set hours and expectations for completing important work commitments outside of “normal” work hours.
Compliance with FLSA. Salaried employees, hourly workers, and contractors all operate under different FLSA rules. Employers must check that their employees are properly classified to avoid any legal issues, costly penalties, and hefty back-pay liabilities.

Pros and cons of salaried workers

Salaried employees can bring consistency and high-level expertise to your team, but there are trade-offs. Here’s a quick look at the advantages and disadvantages for employers.

Pros

Fixed pay simplifies payroll

Salaried employees earn a consistent paycheck, making payroll easier to manage and predict. When payroll budgets are stable, you can more easily make strategic hiring decisions and reduce administrative costs.

No overtime pay

Most salaried workers aren’t entitled to overtime pay. For employers, this keeps labor costs stable without additional expenses during busy periods. To keep up employee satisfaction and compensate for higher expectations, you instead need to offer competitive benefits packages and other perks.

Easier to retain high-level talent

A competitive salary is essential for attracting and retaining highly skilled and experienced talent. While professionals value more than just pay, salaried compensation offers financial stability, career growth, and a mutually beneficial exchange. They’re often non-negotiable for high-level professionals.

Cons

Potential burnout

Many employers expect salaried workers to meet deadlines and complete action items, even if it means putting in extra time. Regularly evaluate your employees’ workloads to ensure they aren’t burning the midnight oil too often. When possible, provide extra incentives — like additional paid time off, wellness programs, or flexible work hours — to maintain morale. Otherwise, burnout and turnover might take over.

Less flexibility for labor costs

Unlike hourly workers, you can’t simply reduce hours when business slows down. Salaried employees earn the same amount regardless of the workload. This requires you to plan and budget more carefully to compensate for labor costs that don’t scale down during quiet periods.

Pros and cons of hourly employees

With hourly employees, businesses have more freedom to adjust labor costs. However, savings in overhead mean more administrative legwork. Let’s dive into the pros and cons.

Pros

Easier to control labor costs

Whether it’s a predictable seasonal dip or an unexpected change in sales, you can readjust the schedules of hourly employees to control costs.

Overtime pay motivation

Overtime pay can be a big motivator for hourly workers to put in extra hours during peak seasons, boosting productivity when your business most needs it.

Flexibility for part-time positions

Hourly pay offers employees the flexibility to request the number of hours they want to work based on their preferences. Likewise, you can hire temporary hourly workers for specific shifts or tasks when a sudden need arises.

Cons

Inaccurate time and attendance

Inaccurate time tracking can create payroll errors, leading to potential disputes, administrative burdens, or compliance issues with local and federal labor laws.

Increased labor costs due to overtime

While extra pay can motivate employees during busy periods, it can also drive up labor costs quickly. Carefully consider the pros and cons of hiring additional staff rather than paying overtime over sustained busy times.

3 tips for choosing between salary and hourly pay

Not sure whether to hire hourly workers, provide salaried jobs, or a mixture of the two? Here are some simple best practices to evaluate your workforce:

Evaluate the job role. Does the role require fixed, regular hours or flexibility? Analyze if the job demands consistency or can adapt to fluctuating schedules.
Consider your budget. Do you need the flexibility to lower labor costs by reducing hours? Hourly workers offer more control when work slows down.
Align compensation with labor laws. Are you complying with FLSA regulations? Proper classification of exempt and nonexempt employees mitigates legal issues.

Flexible financial access for your employees with EarnIn

Whether you have salaried or hourly workers, EarnIn offers a powerful financial wellness benefit that can enhance job satisfaction and reduce stress. With tools including on-demand pay¹, employees have more flexibility to access their pay when they need to and enjoy greater financial control. For example, employees can access their pay the same day they work, starting at $2.99 per transfer to their bank account, with up to $150 per day with a max of $750 between paydays Best of all, EarnIn does not require any integrations with payroll and timekeeping, so you can feel confident offering this benefit without the added time, resources, or risks of payroll delays or errors.

Discover how EarnIn can support your employees’ financial well-being today.

CTA: Give your team the benefit of financial flexibility

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

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