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Life is full of amazing experiences that come along with unavoidable expenses. The amount of money and how you get paid affects how you navigate life and your career. So for this post, we’re talking about salary vs. hourly pay. And while it may seem elementary, knowing the differences between how you get paid is foundational when building the life you want.
So, if you’re facing the decision between salary vs. hourly pay, what should you do?
Before you jump into your next job, let’s look at the benefits of salary vs. hourly so you can make an informed choice and decide which is better for you.
Okay. One is yearly and the other is hourly. Pretty straightforward.
But a lot of people might throw themselves into the salary vs. hourly pay debate and just frantically worry “which is better for me?”
The reality is that when choosing between being a salaried employee vs. an hourly one, you have the opportunity to make an informed decision based on the pros and cons of each financial form of payment that works best for you. Pros and cons, we’ll expand upon soon.
But as an overview, the main differences between salary and hourly pay plays out across taxes, benefits, and bonuses.
Let’s go a little deeper into both styles of payment to get a clearer picture.
Salary pay is what an employee receives upon becoming a full-time employee. Your pay is a predetermined annual sum dispersed throughout the year.
What is salary pay beyond the annual paycheck? Well, schedule and predictability. When you are a salaried employee, you know exactly when you’ll get paid and how much will be in your paycheck. This schedule allows for financial reliability and planning.
A salaried employee vs. an hourly one also varies in their benefits packages. Salary workers are usually entitled to benefits, including health insurance, paid time off, and other programs determined in your contract.
Let’s say you’ve agreed upon a position that pays an annual salary of $60,000. For starters, they aren’t going to just hand you that lump sum at the start of your position and send you on your merry way.
Salaries are paid out through regularly scheduled paychecks. They are often dispersed monthly, biweekly, or sometimes even weekly.
To answer “What is salary pay per paycheck?” can vary according to which pay schedule you are on.
For example, if you’re receiving your salary on a monthly timetable, your paycheck will be $5,000 every month before taxes (dividing 60,000 by 12).
Now, let’s say you’re receiving your paycheck biweekly. In 2021, there are 26 paychecks per year on a biweekly schedule. That breaks down to a paycheck received every two weeks of $2,307.69 before taxes ($60,000 divided by 26).
Of course, this isn’t including any health insurance benefits that may or may not be deducted (depending how much your employer pays), or 401k benefits, etc. All of these expenses can be deducted, along with state and federal taxes. But more on that later.
One potential negative of getting paid salary?
If you’re regularly working 50 to 60 hours per week for that same job, it will break down to a much lower hourly rate than what you may have thought at your typical 40 hours. And on top of that, you won’t be compensated for those extra 10-20 hours.
However, it’s important to note that some salaried positions do get overtime, but it’s not common. We'll expand on this more soon.
An hourly wage is quite simply the amount of money paid out per hour. So, a salaried person still has an hourly wage; they just don’t often look at it that way.
Now, once we make the distinction that we’re talking about a non-salaried worker, we can call them “hourly workers” and refer to those who only get paid for the hours that they work.
Remember a salaried worker gets paid a fixed salary based on a schedule. That’s it. So if they work longer one day, they usually don’t get overtime or extra hourly pay, (some salaried positions WILL be allowed overtime below a certain amount of money).
Compare that to a non-salaried worker who will likely be allowed overtime, depending on the amount of hours they work, the job, and the applicable laws. In terms of classification, regardless of salary or hourly pay, the person could be a contractor or an employee. More on this later.
As for federal guidelines for salaried vs. hourly employees, hourly workers are protected in that they must receive at least the federal minimum wage of $7.25 per hour (though, each state has its own respective minimum wage).
What is the minimum wage in 2021 in all 50 states?
Federal minimum wage is currently $7.25, but remember that if your state has a minimum wage higher than the federal, you are entitled to your state’s higher hourly wage.
How to calculate hourly rate from salary is simple. Consider your typical work week of 40 hours. Divide a week’s pay by 40 to determine the hourly rate.
Now, if you’re a producer and a crew member is requesting a lump sum or day rate for a certain amount of hours---yes, they’ll still have an hourly wage. You’ll need to calculate their hourly wage from that day rate and ensure it’s above both state and minimum wages. Then comes overtime. But that’s another discussion.
Like salaried employees, hourly workers will be paid regularly with a paycheck. However, the difference between salary and hourly is that there is the possibility of variation in that paycheck.
Pay cycles for hourly workers can similarly be dispersed on monthly, biweekly, or weekly schedules. However, many hourly positions run on the more frequent pay schedules of weekly or biweekly. This is a potential benefit of being a non-salaried worker.
Let’s look at an example.
Let’s say you’re a retail worker who just worked 32 hours a week for $13 per hour. The pay for that week will be $416 before taxes.
Now let’s say the holidays are coming up, and the following week, you work late and clock 48 hours. For the first 40 hours, you will make the standard $13 per hour, earning you $520. However, for the 8 hours over those 40 hours, you will earn time-and-a-half, so an additional $156 (8 multiplied by 19.5). Your paycheck before taxes for that week will be $676.
But of course, with every high there is a low.
Say, you’re working this same retail position. During the holidays, you’re clocking 40-48 hours. Suddenly, the company needs to cut those hours, and now, you’re only pulling in 22 hours per week. Your weekly paycheck drops down to $286 per week. As an hourly worker, you’re not going to have that protection of consistent hours that a salary worker enjoys.
You’re likely going to find that salary positions offer far more security than hourly wages.
But no matter how you get paid, be sure it's laid out accurately and clearly. If you get paid through Wrapbook or pay people through Wrapbook, you can see the week's breakdown along with worker type, overtime wages, and much more.
And as mentioned before, if you’re a producer and a worker comes to you asking for that lump sum or their day rate, well, again, you won’t really pay them a lump sum. It will be technically an hourly wage calculated backwards from the day rate.
When calculating your taxes, regardless if you’re in a salaried or hourly position, the percentages of tax don’t change based on salary or hourly. What that will depend on are state laws and income level.
Whether or not someone is paid hourly or on salary is fairly intertwined with the concept of exempt and non-exempt employees. What do we mean by that? First things first, let’s do a quick recap of these terms.
Simply put, exempt employees are workers who are exempt from overtime, meaning that they are not eligible for overtime pay when they exceed the usual 40-hour workweek, make a certain amount of money, and perform certain responsibilities.
Exempt workers are not subject to minimum wage laws. If that gives you the spooks, worry not.
In order to be considered exempt, you must be paid more than minimum wage. As of January 1, 2020, the Fair Labor Standards Act mandates that any person working in an exempt position must be paid at minimum $684 per week, or $35,568 per year.
Additionally, to be considered exempt, an employee’s work must be considered to be administrative, computer-related, executive, outside sales, or professional.
What about in the production world?
Often a producer is exempt and quite possibly their production manager as well.
But note, exemptions are not title driven. They are based on the responsibilities of the worker and their salary.
For instance, a production assistant is, typically, a great example of a non-exempt employee.
But if they’re an office PA employed by a studio who pays them a salary (over $47,476 per year or $913 per week) then yes, that PA would be exempt.
But often, that is rare, and these kinds of positions like PA’s, often do get overtime. But again, the downside of non-exempt is that hours aren’t guaranteed. Though, if you’re in a union, many do have a minimum call of 8 guaranteed hours per day. If you’re a producer, knowing union rules and rates is a budgeting reality.
Now, the flip side: a non-exempt employee is a worker that is qualified for overtime. Once they meet the 40-hour work week, they will be eligible. If we’re talking about those working in the production world, it might not be a 40-hour work week but OT might be given after a certain amount of hours worked in a day.
It’s here that we can get into a bit of the nitty-gritty reality of the federal guidelines for salaried vs. hourly employees.
Salary employee laws vs. hourly employee laws break down into vastly different minimum wages. If you consider the $684 minimum for an exempt employee into a 40-hour work week, their minimum wage breaks down to $17.10. An hourly wage for a minimum wage worker can widely vary state-to-state due (which, as an employee, you are entitled to the higher of the two). But if you’re working at the federal minimum wage of $7.25 per hour, salary vs. hourly isn’t much of a debate. You’re going to get a lot more work as an exempt employee.
When advocating for yourself during the employment process, knowing the pros and cons of each is helpful.
For those seeking full-time positions, many argue that salary offers more persuasive benefits than hourly.
These benefits include:
Financial planning is important. Having a reliable paycheck allows you to plan for your future and feel secure in your decisions. And even though there are times you may end up working more on salary, a salary position affords the opportunity to budget in a much more effective way.
There are hourly positions that come along with benefits, but salaried employees are usually entitled to greater benefits.
These benefits usually include:
These are paycheck securities that many hourly jobs have less access to and sometimes may not have at all.
Additionally, salaried positions are eligible for bonuses. And if a company is looking at promoting an employee, they will often favor salaried employees, leading to faster tracks of advancement within companies.
As mentioned above, to be an exempt salaried employee, the law states your equivalent hourly wage must be above the federal minimum wage. And while there are hourly employees working in specialized fields who receive high hourly pay, you will often find higher paying jobs are salaried.
Keep in mind, some salaried employees can still get overtime pay. As of the end of 2016, some white-collar workers who make a salary of $47,476 or less (or $913 per week), and work over 40 hours in a week, can be eligible for overtime pay.
Though there is considerably more financial reliability in salary positions, the salary vs. hourly pay debate is not without its own points against salary pay. This largely plays out in overtime.
Salaried employees are, more often than not, ineligible for overtime. Regardless of how many hours you have to work, you have no protections or assurances for overtime pay. Yes, working additional hours can present a reason for a bonus, but that is no guarantee.
Again, back to this example---you’re paid $60,000 per year, but each week, you’re constantly working more than 40 hours per week. Now, once you calculate hourly rate from salary, you could actually find you’re paid a much lower hourly rate with little to no time to make the money elsewhere.
Depending on your current goals, you might end up favoring an hourly position.
Why?
Well, consider these benefits... Pros of hourly positions:
Salary employee laws vs. hourly employee laws have distinct differences in their approach to overtime. If you work more than 40 hours per week, you will receive time and a half for all additional hours surpassing those first 40 hours. Depending on a variety of factors, overtime time rates will exceed time and a half.
That money can rack up fast, and if you’re working a particularly hour intensive position, it can be a persuasive option.
Let’s say you’re working as a production assistant. Oftentimes, you will be putting in well over a 40-hour workweek. Though these positions may have a lower hourly wage, you will be fairly compensated for those extra hours unlike a salaried employee.
In addition to time and a half, some employers will offer even higher compensation to employees working holidays. If you’re working these positions that also have you often working overtime, it can be a much better option.
There can be several reasons why someone might pursue an hourly position as opposed to a salaried one.
For many who are in school or are starting out their careers, hourly positions provide the flexibility that makes the most sense for their goals. Some entry level positions start off as hourly, so it may be the primary option for an entry level position. Especially now, in the gig economy, many companies are understanding the need for this kind of flexibility.
For flexibility with jobs and the freedom of freelance work, some might explicitly choose to take on hourly positions that pay higher in addition to other jobs or contract work.
Along with the pros of an hourly position, the difference in reliability can be a legitimate make-or-break reason to favor a salaried position.
Some of these cons include:
Overtime is a great assurance of more fair compensation when you’re pulling in hours that exceed the typical 40-hour workweek. However, sometimes employers will cut costs by decreasing their employees’ hours. You may go into an hourly position with the expectation that you’ll be working 30-35 hours a week with the occasional overtime, but that doesn’t mean a company won’t cut back your hours when necessary or if your services are no longer needed.
Financial regularity is important for financial planning. Even if you’re working a well paid hourly position, that lack of regularity and reliability can be a significant source of stress. It can impede you from making resolute financial and budgeting decisions.
There’s also, usually, a ton of juggling involved. If your hours are cut, you’re likely bouncing around from job to job. This can get exhausting and you may find yourself feeling stressed from the never ending job hunt.
Many salaried positions include benefits. The Affordable Care Act mandates businesses with 50 or more employees help pay for health insurance for their employees that work 30 or more hours per week. However, employers will sidestep that by deliberately cutting your hours. You could regularly be kept at 29 hours per week and still not be eligible for health care.
Additionally, the benefits that are available to hourly employees are often less robust than salaried benefit packages. If you are pursuing an hourly position with promised full time hours, be sure to also look at their benefits package to determine you have the health insurance coverage that you need.
As we saw with salary employee vs. hourly employee laws, there is minimum wage for salaried employees that is much higher than the federal minimum wage. While federal minimum wage is only $7.25 per hour, the $684 per week that mandates a salaried position breaks down to an hourly rate of $17.10 per hour when factoring in a 40-hour work week.
Though there are hourly positions that pay well for specialized skills, many salaried positions tend to provide better pay. Remember that the distinction for exempt workers--- they have to be performing managerial, administrative, managerial, executive, outside sales, or computer-related work. These positions are more specialized and come with more responsibilities, so the pay will often be better.
In addition to higher pay, a salary worker will be more likely to receive bonuses and faster advancement in the company than that of an hourly worker. Even if you’re working other positions or have contract work, consider your options, and see if an hourly position is financially sustainable for you.
If you’re looking at salaried positions, it’s still imperative that you calculate your hourly pay from that salary. If you’re deciding between different positions or salary vs. hourly options, you want to make sure that you’re calculating the number of expected hours worked with your annual pay.
An important note to remember is that an employer may present your salary offer through different wage presentations. These can be:
All of these will sum up to the same annual salary value. Regardless of how an employer presents your offer to you, it’s helpful to break these down so that you know these values. Also be sure to know your pay cycle: monthly, biweekly, or weekly. This can also help you know how to plan ahead with your paychecks and financial obligations.
Now for the formulas:
As an initial calculation, assume that you will be working the typical 40-hour week. With that, we can easily calculate hourly rate from salary.
( Yearly salary / 52 weeks ) / 40 hours per week = hourly wage
Though this is a standard formula, there are additional elements you will want to keep in mind. Though the typical work week is 40 hours, there are positions that may demand more than this. There’s also the production world where most jobs range greatly in hours worked per week.
Here’s where it’s important to do your research and learn more about that particular company and the time demands.
Let’s say that you’re choosing between two jobs. One has a higher salary than the other. This might seem more persuasive up front, but you learn that this job comes with a much greater expectation for the hours you put in during the week.
This is a scenario where you would want to adjust the formula beyond the assumed 40-hour week. You could find that you’re working 50-60 hours per week, and that the seemingly lower paying job actually has a better hourly rate and provides you the flexibility to get another job to make up that money where you end up working the same amount of time anyway.
And even if you find that the position with more hours pays better at an hourly rate, also take into consideration your work/life balance. A higher salary is great, but sometimes a better workload and benefits can offset a greater salary.
Whether you’re choosing a new job or trying to determine how to shape your busy freelance work schedule, weigh the pros and cons. The idea of this salary vs. hourly struggle isn’t real or scary if you’re in tune with what truly works for you and your future.
If you want to go deeper into some of this payroll stuff, dig into our exempt vs. non-exempt employee post, or just reach out to a Wrapbook specialist with any question you might have.
At Wrapbook, we pride ourselves on providing outstanding free resources to producers and their crews, but this post is for informational purposes only as of the date above. The content on our website is not intended to provide and should not be relied on for legal, accounting, or tax advice. You should consult with your own legal, accounting, or tax advisors to determine how this general information may apply to your specific circumstances.
Kathryn is a Los Angeles-based artist-designer passionate about everything entertainment. As both an illustrator and writer, she is interested in how the two worlds meet through animation. You can frequently find her either at your local plant shop or zipping around on roller skates.
