Salary vs. Hourly Pay - Which is Better?

Salaries are usually for full-time work, permanent, and with a fixed working pattern. Hourly pay is more common in retail, hospitality and contract-based work where you're hours are flexible week to week.

But the differences between them aren't just about when money appears in your bank account - they're also linked to benefits and contractual arrangements, and it all should be covered in your employment contract.

Knowing the difference between wages and salary is important for determining what's best for your business as an employer, or your lifestyle as an employee. Here are the differences between the two, as well as the pros and cons of each option.

What's a salary?

A salary is a consistent employee payment over an agreed period of time, usually for working in a full-time role. Generally, salaried employees are paid monthly, however, in certain circumstances they can be paid bi-monthly (twice a month). This will be agreed upon before you start, and stated clearly in your employment contract. A salary is usually a fixed amount per year, so for example, you may have a salary of £24,000 a year, which breaks down to £2,000 a month.

Your overall salary is your gross salary, and the money you take home after taxes and contributions is your net salary.

What's an hourly rate?

An hourly rate, as the name implies, is a set price you get paid for an hour of work. So if your hourly rate is £10 and you work 8 hours in a day, you'll get paid £80 for that day of work. Hourly rates are usually paid in wages, which are calculated and paid either weekly or monthly. You'll still have the same taxes and national insurance contributions taken out of the final amount, and the remainder will be given to you either as cash or paid into your bank account.

What are the advantages of a salary?

1. Consistent pay

One main benefit of a salaried position is that you have a degree of consistency with your earnings - you know what you're going to earn over the course of an annual period, which means you can better break down your monthly and weekly budgeting. Even with a lower overall figure, budgeting is actually easier when you have that consistency with the income that you have. This is one of the main benefits of taking on a job with a salary.

2. Better benefits

It's not guaranteed, but salaried employees are generally likely to receive more in the way of employee benefits, such as employer health care, pension contributions, and paid holiday time. Other perks may include gym membership or other discounts, childcare reimbursements, or paid maternity/paternity leave. So even though your salary may ultimately be lower than a waged employee, you could still be in a more comfortable position overall.

Disadvantages of a salary

1. Lack of overtime

As a salaried worker, the chances are you won't be able to work overtime for overtime rates. You may still have to work overtime, but generally, a salaried employee is required to get their job done no matter how long it takes. So whereas an hourly wage worker can be paid overtime for hours worked in addition to their baseline contract, a salaried worker will often have to work those hours but will not get paid any more than their salary.

This is especially problematic in companies that have a culture of 'presenteeism' - working extra hours to make it look like you're working harder.

2. Risk of pay cuts

When you're a salaried worker the company might be inclined to cut your salary during times of financial difficulty. This again may lead you to be in a position where you're actually working more hours, but not receiving any more money to do so compared to hourly workers.

Benefits of hourly pay

1. Overtime and holiday pay

Waged employees will generally be paid extra for time they work in addition to their 'normal' working hours. So if you work three hours overtime as a waged employee you will be paid for those three extra hours, where a salaried worker might not. Similarly, salaried employees might be required to work on certain holidays, where waged employees will often get bonuses for working them, such as time and a half, or even double/triple time.

2. Quicker payments

Another important consideration in salary vs hourly pay is the time it takes to get paid; with an hourly wage you will generally get your money quicker. A waged employee will often be paid on a weekly basis, though it can be monthly in certain organizations. This means you don't have to budget yourself for as long as you do as a salaried employee, which may see you having to budget over a bi-monthly period between getting paid.

Disadvantages of hourly pay

1. Cut hours

As a waged employee you're paid for the hours that you work, but depending on your contract your employer may have the right to cut your hours if they don't have enough for you to do. So businesses that are going through a harder financial time, or need to find a way to make cost-cutting measures, may do so by cutting your working hours - there may be a minimum amount of hours you must be provided or none at all in a zero-hours contract.

2. Lack of benefits

Waged employees often don't have the same set of benefits as a salaried employee as standard. Though depending on your employer you may have the opportunity to opt-in to those. But it still means an extra level of consideration is required to make sure that your pension contributions and entitlement to any holidays/sick pay/leave are clarified before taking on the role. They often won't be "lumped in" like they are with salary benefits.

Is salary better than wage, or is wage better than salary? Now you know how they differ, you'll be better equipped to answer that question for your own needs.

In the realm of salary negotiation, mastering communication and collaboration is key. With tools like IceHrm, streamline the process and advocate for fair compensation.