Sometimes people use these terms interchangeably, but that’s usually due to a fundamental misunderstanding of how different they actually are. Here’s what you should know…
The main difference between jobs that pay salaries versus ones that pay wages is the amount of time for which an employee’s pay rate is calculated. For salaried employees, their pay is calculated per year. Basically, a salary is a single, large, fixed amount of income which, provided the employee is not terminated from their position, they are guaranteed to make over the course of the year, no more no less.
This, in turn, affects when a salaried employee is paid and how much per pay period. If that pay period is one week, for example, then the amount the employee is paid every week will always be the same, and that amount is determined by dividing the yearly income amount into smaller payments.
Many find this way of making money preferable because it means they can always know exactly how much they will be paid and when. In addition to providing peace of mind, this makes it easier to calculate expenses, schedule bill payments, and generally plan ahead. What’s more, salaried employees usually (though not always) make more per year than workers who earn wages and often have better access to benefit packages, vacation time, bonuses, and flexible hours.
In contrast to salaried employees, workers who are paid in wages are typically paid by the hour. Instead of being guaranteed a large, fixed amount of income per year, they make a smaller, fixed amount of income commensurate to the number of hours they work in a week.
Because of this, wages can be more difficult to predict. A wage-earning employee won’t always know how much they’re going to make in a week, because they may work fewer hours one week and more the next. This also means the amount of time between pay periods is usually longer because the employers require more time to calculate how many hours were worked. Thus, a worker paid in wages often has more difficulty with long-term financial planning than salaried employees.
The biggest issue with wages, however, is the potential for errors or even outright fraud. An employee may claim they worked more hours than they were paid for. Is it true? Could the employee be mistaken or, worse, lying? If it is true, is it because their employer made a mistake? Or is that employer deliberately attempting to exploit their worker? If an understanding can’t be reached, the dispute could result in the parties involved filing formal wage and hour claims in court.
It might seem like employees who receive a salary have the advantage over those who are paid an hourly wage, but there’s one thing that the latter group has that the former does not: overtime.
The federal government has mandated that any wage-earning employee who works more than 40 hours in a single week is entitled to their normal hourly wage plus an additional half of that per extra hour. In other words, if an employee typically makes $8 an hour, then every hour of overtime they worked in a given week will earn them an additional $12 (their usual 8, plus half that, 4).
While not all employers allow overtime, and not all employees want it, for those that do, overtime provides an opportunity for someone paid in wages to potentially exceed their normally expected yearly income. If one person is paid in wages and another is paid a salary, and both of those amounts are the same, the person paid in wages could conceivably make more money by the end of the year. Overtime is not an option for salaried employees; they will only make the previously agreed-upon amount.