Hourly vs. Salary Employees: What's Better for Your Business?
Before hiring the right person for the job, you need to decide how you’ll pay them. Two of the most common ways to pay employees is with a salary or an hourly wage.
You’re probably wondering which option is better: the flexibility of an hourly employee or the stability of a salaried one. Of course, the answer is never as straightforward as we’d like.
Let’s compare the pros and cons of hourly vs. salary workers, the different laws for each, and what to look for when determining the right fit for your business.
What is a salaried employee?
A salaried employee earns an annual wage regardless of when they clock in and out. In other words, whether you work 20 hours or 60 hours per week, the number on your paycheck stays the same.
To state the obvious, an employee isn’t paid their entire salary on the first day. Instead, it’s divided by the number of pay periods, often on a weekly, biweekly, or monthly basis. For example, an employee with a salary of $60,000 a year, paid twice a month, would receive $2,500 per paycheck.
Pros of Salaried Employees
Even if an employee clocks additional hours during the week, they receive the same rate per paycheck. Meaning, you don’t need to compensate employees who go beyond the standard 40-hour workweek.
Another advantage of salaried employees is the predictability of payroll. Every salaried employee signs an employment contract outlining their base salary and frequency of payment. When it comes time for payroll, you know exactly how much to pay since there is no fluctuation from week to week.
Cons of Salaried Employees
Since salaried employees aren’t clocking in and out each day, or filling out a timesheet each week, there’s a possibility they’ll work less than 40 hours during some weeks. That said, most salaried employees are critical players in their organization and strive to meet expectations.
What is an hourly employee?
Hourly employees account for a whopping 55.5% of all wage workers in the U.S.
Here’s how it works – an hourly employee earns a certain rate per hour of work. This rate must match or exceed the minimum wage, which will vary depending on your state. If your state’s minimum wage is different from the federal minimum wage, you’re required to pay the higher of the two.
You can pay hourly employees at the same frequency as salaried employees, but their paychecks will fluctuate to reflect the number of hours they work per week. For example, let’s say you’re an hourly employee working at a rate of $10 per hour. You clock in 40 hours one week, which is $400 worth of work. The following week you only work 20 hours — earning a total of $200.
Pros of Hourly Employees
Unless covered in a contract, hourly employees aren’t guaranteed a certain number of hours each week. This means you have the flexibility to set hours based on demand, securing coverage when you need …read more
Source:: HubSpot Blog
