What is the reason for an employer to have some employees on hourly and some on salary?
For the employer, what are the advantages and disadvantages of the two?
What is it about a particular position that dictates which one the employer chooses?
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I believe if you have the ability to spend a significant amount of money for the company, you should be salaried.
Companies want you to be salaried because then they don’t have to pay you over time.
Always take the hourly rate as an employee if you can! “Sure $80k sounds great but let’s pay that at the $40/hr rate” (those numbers are close enough for the argument here)
In the US, there are rules established by the Government. What’s in it for the company is that not following the rules is against the law and penalties are common.
The actual rules are complex, this is the ELI5 version (≠ the legal version):
* If a worker just performs a process that their supervisor tells them to perform, they are hourly. They don’t have a role is defining the work process, so if the process is bad and takes more hours it’s not the worker’s fault and so the company has to pay overtime.
* If a worker performs a process of their own choice, based on their expertise, then they are salaried. If they do something wrong, they can simply do some more work to make up for it, they don’t need to report themselves to their boss. They don’t get paid overtime.
The advantage, to the employee, of being salaried is that you control your own schedule, you can schedule work around that soccer game your kid is playing in and work more another day.
The advantage, to the employee, of being hourly is that you get paid for the time you are working, not the results of that time. If the machine breaks down and you just stand there for an hour while the electrician fixes it, you get paid for that hour. If the boss wants you to work another hour to make up for the down time, you get paid for that extra time.
Broadly speaking, non-exempt (hourly) employees are paid for the value of their time, while exempt (salaried) employees are paid for the value of their position.
Having been both in the past, and being both now (I have a part-time hourly job), the primary difference I noticed is that as an hourly employee, I am judged by my productivity, and once I leave work, I really don’t think about it. As a salaried manager, I was pretty much “always” fretting over work to some degree, bringing it home with me, and it wasn’t unusual or me to have to sacrifice nights or weekends to get a project completed. I never bother to check my email for my hourly job once I am off the clock, whereas for my salaried position I am sort of always connected, and am expected to respond to the occasional evening or weekend email, even the rare phone call. Yes, I can leave work at 2 pm, but it also isn’t unusual for me to be working on my couch at 8 pm.
If you are an employer and you want to produce X amount of a given product in a day, you really want the certainty and predictability that hourly employees provide you, along with the incentive of overtime should you decide that you need to produce more. But to oversee those employees, you really want a salaried supervisor or manager who owns the process and feels vested in ensuring that the goals are met or exceeded.
There are some extremely well-paid hourly positions: air traffic controllers come to mind. My sister made $200K a year doing that at the end of her career, but when she punched out every day, she was done… She never had to check her email at night or anything.
And of course there are some demanding but low-paid salaried jobs: teachers can put in some long hours, grading papers or preparing lessons at night. People often mistake being salaried as a sign of prestige, but it is often just an easy way for an employer to take advantage of an employee. “Exempt”, after all, means exempt from certain rights guaranteed by law, such as overtime.
Edit: another right that hourly employees enjoy that salaried do not are breaks: they’re legally mandated, often two ten-minute breaks and a half-hour for lunch. Salaried employees don’t enjoy any such guarantee. Don’t get me wrong, I would take an occasional break as a salaried manager, but wouldn’t make a fuss over it as my hourly employees would; they would say “break time!” at the same time every morning, would usually remove themselves from their workspace, and I just sort of knew not to mess with them at that time. As a salaried employee, I would feel obligated to take a call during lunch, and could never tell anyone that I couldn’t help them because I was “on break”.
An hourly wage usually means a casual position. Usually the rate you are being paid here his higher than someone in the same role who has a salary.
However, a casual employee has no job security and has no leave entitlements, and can be let go at any moment. Businesses like these staff because they can use them when the work load is high, and then let them go when things are less busy.
Someone on a salary is paid slightly less, but this is compensated by having leave entitlements and job security.
If you are salaried are you paid weekly?
There are a some great answers on the legal aspects of this. There’s also an incentives aspect.
Some jobs are easily divided into hourly chunks. For these jobs it’s generally the case that if you spend 2 hours on something you’ll get twice as much done as if you spend 1 hour on it. For these jobs it common to pay by the hour because that gives you good alignment between what you get and what you pay.
Some jobs are very hard to divide into hours. That’s often because it can be very difficult to figure out if there has been any progress at all until it’s done. Telling someone to spend an extra hour on it often has very little relationship to how much work gets done. For these jobs it’s easier to just give them an annual salary, assume they’re doing their job well and fire them if it turns out they aren’t.
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