Salary vs. Hourly Pay: Differences, Benefits and Challenges
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Companies offer their employees either salary or hourly pay depending on the position, the professional's experience and the company's policies. If you're looking for a new job, you might prefer a certain type of payment over the other. Learning about the differences between salary and hourly pay can help you decide which compensation method you prefer. In this article, we compare salary vs. hourly pay, explore the benefits and challenges of both and provide tips for choosing between the two.
Salary vs. hourly pay
There are several differences between positions that offer salary vs. hourly pay. The most distinct difference between the two is the way employees receive their wages, and both methods have their advantages and challenges. Here's a basic overview of how salary and hourly pay work:
Salary is a consistent payment to an employee based on working a full-time position. Employers typically usually distribute salaries on a monthly or bimonthly basis, but some businesses pay salaries out annually. Employers include the amount and frequency of your pay as part of your employment contract. Each salary payment is a fixed amount. For example, you would receive $20,000 per month before taxes if you earn a salary of $240,000 per year.
Hourly pay is the amount of money you receive for each hour you spend working. As an hourly employee, you get paid for all the hours that you work. If an employer wants more of your time, they pay you more. For example, if you work for 25 hours and 30 minutes, you get paid for 25.5 hours. If your hourly rate is $35, you would receive $892.50 for your time.
Benefits of salary pay
Here are some primary benefits of receiving a salary:
Salaried employees receive a set amount from their employers consistently. Every check is the same, even if there's a holiday. Even if you use sick days, go on maternity leave or take paid annual leave, you can depend on receiving the same amount your employer usually pays you. One exception is if you receive bonus pay or commission. Then you may even receive a higher payment than usual. A steady income can reduce stress and allow more flexibility if you have unexpected expenses.
The Hong Kong Employment Ordinance requires employers to provide employees who have worked for the company for at least 18 hours per week for a year with paid annual leave, a sickness allowance, holiday pay and 10 weeks' maternity leave. All employees also pay into the Mandatory Provident Fund (MPF), but companies may offer salaried employees the option to contribute additional funds to an Occupational Retirement Schemes Ordinance (ORSO) account. Salaried employees may also have the opportunity to receive other benefits, such as health, vision, dental and life insurance.
More career advancement opportunities
Generally, a salaried position comes with more responsibilities than an hourly job. Even if you accept a pay decrease to move from an hourly to a salaried role, you may find it worth it in the long term. In addition to benefits, you could receive a promotion to a more advanced position more quickly than an hourly employee. Employers typically require professionals in management roles, for example, to be salaried, full-time employees. Because employees who receive salaries instead of hourly pay often hold more senior positions, they may be more likely to receive promotions to higher-ranking positions.
Salary pay challenges
Some employers pay hourly employees overtime for hours worked over 40 hours per week. Regardless, hourly employees receive their hourly wage for any additional time they work beyond their scheduled hours. Employers can require salaried employees to work as long as it takes to get the job done. Because they offer a salary at a flat rate, salaried employees earn the same amount of money even during weeks when they work extra hours. Salaried employees often balance the extra hours they work by working fewer hours during less busy weeks when possible.
Benefits of hourly pay
Here are some of the major benefits of receiving hourly pay:
Opportunity for overtime pay
While salaried employees receive the same amount of pay no matter how many hours they work, employers may offer overtime pay to hourly employees. Overtime pay is typically 1.5 times the employee's standard hourly rate. For example, if an employee typically earns $20 per hour, a company that offers overtime pay would make $30 per hour for overtime pay. Overtime pay usually applies after the employee has worked 40 hours in a week, but it depends on the company's policies. If a company includes overtime pay in their employee contract, they have a legal obligation to provide it.
Many hourly employees are entitled to holiday pay in accordance with the law. Hong Kong has 12 statutory holidays, which are those recognised by the government as official. A continuous employee, which is an employee who has worked at least 18 hours a week for four weeks or more, is eligible to receive their average daily wages on holidays once they have worked for their employer for at least three months. These holidays may include the following:
The first day of January
The first, second and fourth day of the Lunar New Year
Ching Ming Festival
Tuen Ng Festival
Hong Kong Special Administrative Region Establishment Day
The day after the Chinese Mid-Autumn Festival
Chung Yeung Festival
Chinese Winter Solstice Festival or Christmas Day
While salaried employees may work additional hours some days while receiving the same pay, employers have an obligation to pay hourly employees for each hour they work. For this reason, most employers establish set schedules for hourly employees, so the employees often have a predictable schedule. In some roles, particularly part-time positions, hourly employees may have varying schedules. In these instances, they can typically request the number of hours they work. For example, they may work different shifts as long as they total 20 hours or fewer per week.
Hourly pay challenges
The income of an hourly employee might be more vulnerable to changes. Hourly positions typically feel the impact of a poor economy or economic downtown in their industry before those in salaried positions. Missing their scheduled hours can also affect an hourly employee's pay. For example, someone who arrives 10 minutes late for a job that pays $35 per hour would lose $5.84. Besides losing money for tardiness, hourly employees may have less flexible hours than salaried employees. Despite its challenges, many enjoy the working hours and overtime potential of hourly pay.
Tips for choosing between salary and hourly pay
Here are some tips you can consider when considering salary versus hourly pay:
Review your personal schedule
Before deciding whether you want to seek a job that offers salary or hourly pay, review your personal schedule. If you prefer to work part-time or have obligations that require an established full-time schedule, hourly pay may be a good option for you. If you have the availability to dedicate extra hours to work, you might consider a salaried position. Keep in mind that neither type of pay offers a guarantee for a specific schedule, as your employer chooses your working hours. You might consider discussing your scheduling preferences with a potential employer before accepting a job offer.
Consider the type of benefits you want
Although the law requires employers to offer certain types of benefits to continuous employees who have worked for the company for a certain amount of time, companies provide other benefits at their own discretion. Full-time, salaried employees may be eligible for more benefits, as employers often provide optional benefits to employees in higher-level positions. If you're interested in a position that offers additional benefits, such as health care or ORSO retirement options, you may prefer a salaried position. Otherwise, you may find an hourly position more suitable.
Establish career goals
One of the primary differences between salary and hourly pay is the type of employee who typically receives them. Entry-level, mid-level and part-time employees often receive hourly pay, while full-time and senior employees typically receive a salary. If you're new to the job market or looking for a temporary position, you might prefer an hourly position. If you have experience in your field and want to pursue career advancement, you may consider a salaried role.
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