Salary Vs. Wage: What’s The Difference?

Business Terms

There are a lot of different terms surrounding payroll and employee compensation, and two of these are “salary” and “wage.” These terms are often used interchangeably, and while they do have some crossover in a few contexts, they actually refer to two different pay structures.

In this article, we’ll cover what a salary is, what a wage is, and the differences between the two pay structures.

Key Takeaways:

Salary	Wage
Salaried employees’ paychecks don’t change based on the number of hours worked.	Hourly wage employees’ paychecks depend on the number of hours worked.
Salaried employees’ paychecks are roughly the same every pay period.	Hourly wage employees’ paychecks can change every pay period.
Salaried employees are exempt.	Hourly wage employees are non-exempt.
Salaried employees typically work in management or white-collar positions.	Hourly wage employees typically work in blue-collar positions.
Salaried employees can’t earn more money by working more hours.	Hourly wage employees can earn more money by working more hours.

What Is a Salary?

A salary is the amount of money paid to an employee for a year’s worth of work. It’s a pay structure that gives each employee a set amount of compensation every year, whether they worked more than 40 hours a week or not.

Here are some of the facts about salaried employees:

Their paychecks don’t change based on hours worked. For example, if an engineer’s salary is $80,000, that means they earn $80,000 a year whether they stay late, leave early, or hit exactly 40 hours a week. (Although there may be other repercussions for not working their full 40 hours a week.)
Their paycheck will be roughly the same every pay period. Payroll generally has an easy time calculating salaried employees’ paychecks, as all they have to do is divide their salary by the number of pay periods in the year.
They are exempt employees. This means salaried employees are not eligible to earn overtime pay, even if they work more than 40 hours a week.
They typically work in management or white-collar occupations. This isn’t always true, but generally, people who work in white-collar or managerial roles are salaried. Usually, these are industries and positions that also don’t have high rates of unionization.
They don’t have the opportunity to earn more money by working more hours. This brings consistency to employees’ and employers’ bank accounts, but it also can make it difficult to motivate employees to work more than 40 hours a week.

What Is a Wage?

A wage is the amount of money an employee earns per hour. This rate increases during overtime hours and employees who earn wages often have paychecks that vary in size because they depend on how many hours they worked during that pay period.

Here are some of the facts about earning hourly wages:

Their paychecks depend on hours worked. An employee who earns wages is paid based on the number of hours they worked during a pay period. This means they have an hourly pay rate and need to track their hours – usually by clocking in and out.
Their paychecks can change every pay period. Since they’re paid an hourly rate, if an employee works different hours every pay period, their paycheck will be different every pay period.

This presents an opportunity to earn more money by working more hours or overtime hours, but it also brings the possibility of earning less if they work fewer hours for some reason.
They are non-exempt employees. Employees who earn wages are non-exempt, which means their employers have to give them overtime pay if they work beyond their allotted number of hours (usually about 30-40 hours a week).
They typically work in blue-collar positions. This is a generalization, but typically blue-collar jobs have a high number of workers who earn wages. The same goes for many retail or seasonal jobs.
They can earn more money by working longer hours. Employees who earn hourly wages can earn more money by working more. This benefits employees’ wallets and makes it easier for employers to motivate their workers to put in more hours.

Salary Vs. Wage FAQ

When is salary better than hourly wages?

Salary is better than hourly wages when you want consistency in employees’ compensation. Because salaried workers generally earn the same amount of money every paycheck, it’s much simpler for both the employee and the employer to budget their pay.

In addition, it’s significantly less work for payroll to cut paychecks for salaried employees, as they pay them the same amount every pay period.

On the other hand, hourly wages do have the benefit of allowing employees to earn more money by working more hours, while salaried employees get what they get no matter how many hours they work.

This makes it easier for companies to incentivize their employees who earn hourly wages to work longer or additional hours than it is to encourage salaried employees to do the same.
Are salaries considered wages?

Sometimes salaries are considered wages. Some laws and policies may use the term “wages” to refer to all compensation that employees are given, including hourly pay, commissions, and salaries.

Wages in this sense may also include:
- Bonuses
- Overtime
- Vacation pay
- Piece rate
- Non-cash compensation
The term “wages” is commonly used for tax purposes, referring to the total amount of money businesses pay their employees in one form or another.

As far as pay structures go, though, salaries and wages are different. An employee who earns a salary earns a set amount of money each year, regardless of the number of hours they work, while an employee who earns wages is paid by the hour.
What are the disadvantages of being on salary for employees?

The disadvantages of being on salary for employees are that they don’t get paid for overtime and can’t earn more money by working more hours. This means they may have to put in more hours for far less pay than their counterparts who earn hourly wages.

Some companies set the expectation that if employees want to keep their jobs or be considered for promotions, they have to put in more than 40 hours a week, sometimes even requiring weekend and overtime shifts.

While many companies pay their salaried workers well to make up for this, they don’t have to – especially in areas with low minimum wage requirements.

In addition, salaried employees can’t earn more money by working more hours. If they want to get paid more, they have to ask for a raise, hope for a bonus, or take on a second job.

Business Terms

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Author

Abby McCain

Abby is a writer who is passionate about the power of story. Whether it’s communicating complicated topics in a clear way or helping readers connect with another person or place from the comfort of their couch. Abby attended Oral Roberts University in Tulsa, Oklahoma, where she earned a degree in writing with concentrations in journalism and business.

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