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The terms “salary” and “wages” are often used interchangeably. The fact is, these two terms hold different meanings. A salary is a fixed amount payable at regular intervals and can be weekly or monthly payments straight into an employee’s bank account. Wages are hourly or daily payments for work carried out during the working day.

The main difference between salary and hourly wage is that salaries are a fixed upon payment agreed to by both the employer and employee. Wages, on the other hand, may vary depending on hours worked and performance. Both salary and wage have their pros and cons.

Advantages of salaried pay

  • Consistency — employees are guaranteed a certain amount every week or month, excluding bonuses which makes for easier financial planning.

  • Holiday — salaried employees are entitled to a number of paid days off every year, with the number of days pre-agreed with the employer.

  • Higher wages — salary workers generally have more responsibilities compared to their waged counterpart. Salaried employees might have to work more hours than the standard work week to catch up with deadlines, however, compensation for these responsibilities is reflected in their salary.

Disadvantages of salaried pay

  • Overtime — one of the main disadvantages of salaried pay is working overtime. Although salaried employees are entitled to overtime, tracking overtime may present a challenge. An hourly worker would work overtime and simply charge for the hours worked.

  • Pay cuts — companies going through tough financial periods usually slash expenses by cutting pay. Although waged employees are more likely to have their hours reduced, it would not affect their hourly rate as they are still paid for the hours worked. Salary workers might need to work more hours with no extra pay.

  • Public holiday pay — like overtime pay, waged workers are often paid more to work on public holidays during Christmas or Easter. Depending on the nature of the business and contract, salaried workers might be expected to work over holiday periods without any extra pay.

Advantages of waged pay

  • Payment — an advantage of an hourly wage is that employees get paid for the exact hours they work. If an employee works overtime, they will also be paid for those hours.

  • No contract — waged employers are usually not bound by contracts. As they are not bound by contracts, waged employees are not liable for any legal obligations in the event that they leave during the agreed period.

  • Less responsibility — employees working on a salaried basis may hold more accountability within the company, whereas waged workers may have less responsibility for the growth of the company.

  • Immediate pay— waged workers mostly receive their pay on a daily or weekly basis, while salaried employees usually wait a month to receive their payslip.

Disadvantages of waged pay

  • Working hours — waged workers receive pay according to the hours they have worked. In order to receive any extra pay, a waged employee may have to work extra hours.

  • Hours cut — if a company experiences financial difficulties, waged employees might be the first to go.

  • Benefits — although paid for the exact hours worked, waged employees lack a safety net. A waged employee would not be entitled to sick pay if absent from work, nor pension contributions.

Last reviewed 20 November 2018