Is It Better To Pay Employees Hourly Or Salary?

What do you do at your business? Do you pay your employees hourly or salary? It’s an important question that’s always debatable.

Graphic of a scale with a hand balancing time vs. money

The hourly or salary debate is a common one for employers of all shapes and sizes. There are all sorts of state and federal rules and regulations that must be considered before making any decision.

How Much Should You Pay Your Employees?

In order to make the right decision for your business, it’s imperative that you consult with your management team and your legal department. This post is only intended to get the wheels turning about the differences between paying employees hourly or salary, so let’s get started…

Compensation is a big deal. No one wants to work for your company for free. Everyone finds a job in order to collect a paycheck. Whether that paycheck is based on hours worked or annual salary is up to the employer and it is typically based on the employment contract that the employee signed.

The way that you categorize employees (exempt vs. non-exempt) is dictated by the Fair Labor Standards Act ( The laws are a bit confusing, so it’s best to read through them with your legal team. But there are certainly pros and cons of hourly employees vs salaried employees. Let’s take a look at the main differences:

Hourly Workers

  • Paid a set amount for each hour worked
  • Only paid for the exact number of hours worked
  • Must pay overtime for hours worked over 40 hours/week
  • Good option for seasonal workers or part-time workers

Salary Employees

  • Paid an annual salary based on a 2080-hour year at a minimum of $455 per week
  • Total payment is divided evenly into each pay period
  • Earn paycheck regardless of how many hours worked
  • Good option for full-time, year-round workers

It’s important to pay your employees a competitive wage and this should be clearly defined in both the job description and the employment contract. What you decide to do is up to you and it likely depends on the position that you’re hiring for.

Is It Better To Hire An Employee Or An Independent Contractor?

As long as you follow the state and federal laws pertaining to hourly and salary, you’ll be ok. It might be wise to do some quick math to see which pay option is ideal for you and your employees before you do anything else.

Once again, it’s imperative that you consult your company’s legal team to ensure that you do the right thing.

See Also:

Sign up for our newsletter!