What is a salaried employee? A comprehensive guide

Jobs come in many forms, and the line between hourly and salaried roles may seem blurry. What is salary pay, exactly? And how does it differ from hourly pay? Understanding these differences is essential for both employees and employers to ensure fair compensation, compliance with labor laws, and effective workforce management. Here, we’ll provide a complete overview of what it means to be a salaried employee.

What is a salaried employee?  

A salaried employee enjoys a fixed paycheck that arrives regularly, regardless of their weekly work hours. This consistent income offers stability and predictability, making financial planning easier. In the United States, salaried employees fall into two categories: exempt and non-exempt. These classifications determine their eligibility for overtime pay and other benefits.

So, what’s the difference between exempt and non-exempt employees? The answer is relatively straightforward. Exempt employees don’t get overtime pay, no matter how many extra hours they put in. They often have roles with more responsibility, like managers, where the nature of the job justifies this exemption. 

On the other hand, non-exempt employees benefit from overtime pay for any hours worked beyond the standard 40-hour workweek, thanks to the Fair Labor Standards Act.

How does salary pay work?

If you’re paid a salary, you get a consistent amount each pay period that assumes a standard number of hours, typically 40 per week, regardless of how many hours you actually worked.

Consider this: You’re a project manager with a salary of $90,000 a year. Some weeks, you’re burning the midnight oil, putting in hours of overtime (which you won’t get paid for because you are exempt). Other weeks, you may find yourself with rare but valuable free time during the day. That’s the joy and pitfall of salaried pay. It doesn’t matter if you put in extra hours one week and fewer hours the next—you will always receive the same amount on your paycheck. 

If you were charging a per-hour rate, you would have been paid extra for those overtime hours. However, you wouldn’t charge for the hours you weren’t actively working, and you likely wouldn’t receive the same benefits.

Salaried vs. hourly employee: Which is better? 

The main difference between salaried and hourly employees is that salaried employees receive a fixed pay regardless of hours worked. In contrast, hourly employees are paid based on their actual work hours. The difference is really that simple.  

So, when it comes to salaried employees versus hourly, which is better? Well, that answer is not as cut-and-dry. Several factors will determine whether salary or hourly employment is right for you. Consider the following:

Overtime pay

Hourly employees get the perk of overtime pay, which can boost their income. Imagine getting paid extra for every hour worked beyond the standard 40 hours per week. In contrast, not all salaried employees receive additional compensation for extra hours. The trade-off here is straightforward: More work doesn’t necessarily mean more pay for salaried positions.

Work-life balance

Salaried employees often have the luxury of a more predictable work schedule—something that convinces many contract employees to convert to salaried positions. However, they could also be expected to stay late or take work home without extra pay.

Conversely, hourly workers usually have clear boundaries—they clock in, they clock out, and that’s it. Yet, they might face varying schedules that change week by week. Balancing personal time with work commitments can be more straightforward for some but more complex for others, depending on the employment type.

Job security and benefits

One of the most significant advantages of salaried positions is the array of benefits that often accompany them. Health insurance, retirement plans, and paid time off are common perks.

Hourly positions might not come with these benefits. It largely depends on the employer. For employers, the more complex onboarding process for a salaried position may increase the cost of a new hire.

Income stability

Consistency is paramount for salaried employees. Receiving the same paycheck every month brings peace of mind and helps with long-term financial planning.

In contrast, hourly employees might see their income fluctuate depending on the number of hours worked. Although this can yield higher earnings during busy periods, it can also result in lower paychecks during slower times.

Career advancement

Salaried positions often come with a ladder of career progression. Opportunities for promotions and professional growth are typically more prevalent.

Conversely, hourly positions might offer fewer chances for advancement, although this is not a hard and fast rule. Career trajectories can vary significantly based on the industry and employer.

Flexibility

Flexibility is a double-edged sword. Hourly employees might have the chance to pick up extra shifts or reduce their hours when needed, providing flexibility that salaried positions often lack. Salaried employees generally have set expectations for their work hours, which can limit their ability to adjust their schedules on the fly.

Work intensity and expectations

Salaried positions often come with higher expectations and responsibilities. The work intensity might be greater, emphasizing meeting performance metrics and taking on additional tasks.

Hourly employees, in contrast, typically focus on completing their duties within their scheduled hours. Once the clock stops, so does the work, potentially lowering stress levels regarding job responsibilities.

Labor laws for salaried employees

To remain competitive, you must stay ahead of the curve regarding labor laws. According to the U.S. Department of Labor, there are over 180 federal laws pertaining to workplace activities. Here’s a breakdown of some noteworthy statutes: 

• Exempt and non-exempt pay: Under the Fair Labor Standards Act (FLSA), exempt employees are not entitled to overtime pay, while non-exempt employees must be compensated for overtime work. Recent updates have extended overtime protections.
• Exceeding work hours: Exempt salaried employees may be required to work beyond the typical 40-hour workweek without additional compensation. Employers should clearly communicate these expectations to avoid any misunderstandings.
• Pay deductions: Employers can deduct pay for personal absences, sick leave, and disciplinary actions under certain conditions. However, these deductions must comply with specific regulations to avoid legal issues.
• Minimum wage and child labor: Under the FLSA, employers must pay non-exempt employees at least the federal minimum wage. In addition, many states set higher minimum wages. Strict rules also govern what hours and conditions minors can work, ensuring their safety and fair treatment.
• Workplace safety and health: The Occupational Safety and Health Act (OSHA) requires employers to provide a workplace free from recognized hazards. Compliance with OSHA regulations is mandatory to ensure the safety and health of all employees, including salaried workers.
• Family and medical leave: The Family and Medical Leave Act (FMLA) allows eligible employees to take an unpaid, job-protected leave of absence for up to 12 weeks for particular family and medical reasons. This law applies to all employees, whether they are salaried or hourly.
• Workers’ compensation: Salaried employees are entitled to workers’ compensation benefits if injured on the job. These benefits include medical care and compensation for lost wages due to work-related injuries.

Hire confidently and manage compliantly with Oyster

When you understand what it means to hire a salaried employee, you can ensure compliance with labor laws and effectively manage your workforce. This knowledge is crucial for leadership, human resources, payroll, and legal teams to navigate the complexities of employee classifications and compensation structures.

The Oyster platform simplifies global employment, payroll, benefits, and team management all in one place so you can hire top talent from anywhere effortlessly. Learn more about Oyster’s employer of record (EOR) services.