Employee compensation can be somewhat complicated and full of unfamiliar jargon but one thing's for certain: It mainly comes down to two categories: salaries and hourly pay. Salaries involve a predetermined pay, regardless of the hours you clock in at work. On the flip side, hourly pay dictates your wage based on the amount of time you work each week, with the bonus of potential overtime pay.
To be categorized as exempt, and therefore not eligible for overtime pay, an employee must earn at least $684 a week, or $35,568 annually, meet certain exception conditions revolving around discretion and independent judgment, and be paid on a salaried basis. Typically, positions with managerial responsibilities fall into this category.
For salaried employees, the wage they earn is consistent - be it calculated monthly or annually. However, the expectation often comes with an inherent pressure to fulfil specified tasks, goals, and responsibilities, potentially requiring work over weekends or extended hours, with no additional pay. This could interfere with work-life balance and result in increased stress.
Nevertheless, salary-based roles come with a sense of stability. It's more challenging for employers to reduce a salaried employee's pay as opposed to an hourly worker's hours. If you're paid by the hour, every minute you put in at work counts towards your paycheck. From a legal standpoint, overtime should yield 1.5 times the base pay rate. However, some employers might offer double pay during holidays. This is usually covered in the employment contract, and it's worth mentioning, is subject to the employer's discretion.
An hourly basis can often offer a better work-life split, especially if you're in a well-paying job with plenty of available overtime. But job security can be shaky, leaving you more exposed to impacts from legislative changes or company downturns. This is because it’s generally easier for a company to reduce an hourly employee's hours rather than eliminate a salaried position in entirety. The potential vulnerability can be somewhat mitigated if there are union protections in place.
Healthcare coverage eligibility is another contention. The Affordable Care Act (ACA) mandates businesses of 50 or more employees to offer healthcare to full-time employees - typically defined as those working more than 30 hours a week. A technique employed by some companies is to limit hourly employees' workweek to less than 30 hours to bypass this obligation.
The Fair Labor Standards Act (FLSA) establishes hardware to regulate the type of payment an employee receives, based on their duties performed more than job titles. Note that negotiation doesn't come into play when determining job status as exempt or nonexempt under the FLSA. Implicit costs, like wages and salaries, are covered by the company voluntarily.
The Bureau of Labor Statistics (BLS) reported a median income of $1,118 per week for U.S. workers in the third quarter of 2023, with the figure rising to $1,208 for men and dropping to $1,005 for women. Interestingly, half of all workers earned more than the median, and half earned less. The national unemployment rate was 3.7% in November 2023, with 19 states scoring lower.
There's a distinct trade-off between being an hourly and a salaried employee. Despite potential drawbacks, salaried employees usually receive more benefits such as paid vacation and sick days, retirement accounts, and additional employer-sponsored perks. Conversely, hourly workers rarely receive similar compensations and may have to arrange their healthcare. Nonetheless, they enjoy a higher degree of autonomy and could even have the flexibility to set their work hours.