Salary vs. Wage: What's the Difference?

Salary refers to a set amount of money that your employer will pay you over a year’s time at regular intervals. This amount is based on various factors, including the position you hold, your experience, your education, where your job is located, and the organization you work for. Many organizations have set ranges for each position in their company; however, these salaries may be negotiable. The salary you receive is a fixed amount and may be affected by other benefits offered by the company such as health insurance, paid-time-off (PTO) days, vacation days, 401(k) plans, and shares.

When an employee works on a salaried basis, they are expected to work a set amount of hours each day or each week. For example, you may receive a salary of $70,000 per year under the expectations that you will work 40 hours each week of the year minus any PTO, vacation, and sick days. Salaries are typically paid out either bi-monthly or monthly; so, if you make $70,000 per year, you would receive $2,692.31 every two weeks before taxes and deductions.

Learn more: How to Address Salary at Each Stage of the Application Process

Wages refer to compensation paid to an employee based on how much work is done and the number of hours spent working. Most wages are set at an hourly rate, so the person will receive a pre-determined compensation for each hour worked. For example, if you make $10 an hour and work 40 hours in a week, you would be paid $400 before taxes and deductions for that week of work. Most employees who work on an hourly basis are required to keep track of their time spent working via a timesheet or time card. They will then submit the card to their employer at the end of each shift or at the end of a week.

Most employees who work for wages are considered to be pre-exempt employees. This means that they are eligible for overtime in the event that they work more than 40 hours per week. In most cases, overtime pay is a time and a half, or one and a half times their standard pay. So, if you make $10 an hour and work 50 hours in a week, you would be paid $400 for the standard 40 hours and then $15 per hour for the additional 10 hours worked for a total of $550.

The following are the key differences between salaries and wages:

• Fixed vs. variable income: A person who works on a salary receives a fixed income each pay period and each year. For example, if you have a salary of $75,000, this is how much you will earn each year. However, hourly employees may receive varying income depending on how many hours are work. For example, if you make $10 an hour and work 40 hours one week and 30 hours the next, you would make two different amounts of income for each week.
• Exempt vs. non-exempt: Most waged employees are non-exempt, so they are eligible to receive overtime pay. Someone who is paid a salary is often not eligible to receive overtime, or they are considered to be an exempt employee. This is true even if the salaried employee technically works more than 40 hours each week. However, some salaried employees are eligible for overtime; it is up to the discretion of the employer to determine whether salaried employees can make overtime or not.
• Benefits: Salaried employees are much more likely to be eligible for additional benefits like healthcare insurance, paid vacation and personal days, and 401(k)s with matching employer contributions. These benefits add up and can save employees a significant amount of money over the course of a year. Employees who work on an hourly basis are much less likely to receive additional employment benefits.
• Pay schedule: Employees who work on a salaried basis receive a paycheck on a set schedule. For example, if you’re a salaried employee, you may receive a paycheck every two weeks, even if there is a holiday or you took time off. Hourly employees don’t always receive paychecks on a set schedule, especially if the employee took time off during the pay period. For example, if you are an hourly employee and you take two weeks off for vacation, you likely won’t receive a paycheck for that pay period.

Here are a few key advantages of salary pay:

• Better career advancement possibilities: Salaried employees often have an increased opportunity for career advancement, as most salaried positions come with more responsibility and the chance to move up in an organization.
• Steady income: Because salaried employees are paid on a set schedule, you can enjoy a predictable and steady income that doesn’t change regardless of the hours you work (unless you take time off that you are not paid for.)
• Better benefits: As previously mentioned, salaried employees often have access to more benefits that can offer significant savings and perks.

The following are the benefits of working for hourly wages:

• Flexibility: Some employees who work on an hourly basis are able to set their own schedules or take time off with short notice. This provides great flexibility compared to salaried employees, who often work a set schedule each week.
• Overtime: Hourly employees are eligible for overtime, and working several hours of overtime can add up to hundreds of additional income dollars. Additionally, some employers may more than the standard overtime pay to employees who work holidays, providing another opportunity to make additional income.