Should You Pay Employees A Salary Or An Hourly Wage?
Every business must carefully consider how they are going to pay their employees. Employee compensation is an important part of the hiring process and it can directly impact the success of your business. Besides figuring out a competitive wage to pay your employees, you must also decide if you are going to pay them a salary or an hourly wage. There’s no right answer, but there are some things to consider.
Lets quickly define the difference between a salary and hourly employee. A salaried employee is paid an annual amount that is then divided evenly over every pay period in the work year. An hourly worker is paid a hourly rate based on the number of hours worked. They must document their time and will paid a different amount every paycheck based on their hours worked. It’s pretty simple.
When you are deciding if you should pay an employee a salary or an hourly rate, you need to consider a few things:
- What’s the “normal” way to pay in your company? In your industry?
- What are the overall costs to your company for each?
- Do you have consistent year-round work or seasonal work?
Let’s take a look at whether you should pay employees a salary or an hourly wage:
Hourly Employee Compensation
- Receive limited benefits, perks, and bonuses
- Can work over 40 hours per week and must be paid overtime
- Must document every minute worked
- Are paid different amounts each pay period
- Are a bit more flexible with scheduling
- Are typically paid more on a “per hour” basis than a salaried employee
- Ideal for businesses with seasonal peaks
- May cause more stress and job hopping due to inconsistent paychecks
Salary Employee Compensation
- Receive a steady paycheck
- Must get work completed regardless of hours worked
- More rigid schedules
- Typically are not paid overtime
- Receive less money on a “per hour” basis than a hourly employee
- Ideal for businesses that have full time, consistent work
- Considered more of a “career” move, which holds a certain prestige
- Entitled to benefits, perks, and bonuses
What do you think you’ll do? Will you pay an employee a salary or an hourly rate? When it comes to salary vs hourly, there are no right and wrong answers. It ultimately depends on your company’s needs, consistency, and overall workload. Be sure to choose the best option for you – just be sure that you follow all laws pertaining to the Fair Labor Standards Act of 1938 and also laws dictated by your state.