Salary vs. Hourly
Is one better than the other?
Employees
• Workers are categorized not only by what they
do, but also how they get paid.
• One may be paid a salary, or one may be paid
hourly.
• Is one better than another?
Salary
• A salaried employee is paid based on an
annual or yearly amount, called a salary.
• The salary is divided among pay periods
(weekly, bi-monthly, or monthly). Usually this
is based on a 2,080 hour year.
• 2,080 hours is 40 hours per week for 52
weeks per year.
Salary
• Salaried employees are not required to sign a
time sheet or otherwise to account for their
time. They get paid not on hours worked but
on that overall salary, so if a salaried
employee works more or less than a "normal"
40-hour work week, that is not documented
by the employer.
Hourly
• An hourly employee is paid based on an
hourly amount.
• They are paid for the hours that they work.
• The employer determines the hours for an
hourly employee each week.
• Hourly employees must document their work
by using a time card system or completing a
time sheet, which the employer verifies.
Hourly
• Employees who
work less than fulltime are
considered parttime, and they may
have different pay
rates, benefits, and
paid time off than
full-time hourly
employees.
Examples
• A salaried employee is paid $20,000 a year.
This salary is divided by the number of pay
periods in the year to determine the salary for
each pay period. If salaried employees are
paid monthly, this employee would receive
$1666.67 a month.
Examples
• An hourly employee is paid $9.62 an hour. To find
this employee's pay amount, the hourly rate is
multiplied by the number of hours worked in a
pay period. ($9.62 X 2080 = $20,009.60)
• For calculation purposes, a salaried employee is
determined to work 2080 hours a year (52 weeks
times 40 hours a week). So, in the examples, the
$9.62 an hour paid to the hourly worker is
roughly the same as the $20,000 annual salary
paid to the salaried worker.
Overtime Pay
• If an hourly employee works more than 40
hours a week, they may be eligible for
overtime pay (federal law).
• State laws also regulate when overtime may
be paid and the rate of pay.
• An employer is always allowed to pay
overtime more generously to hourly
employees.
Example Time
Card with
Overtime
Example
• Q: If an hourly employee works 50 hours one
week (which is 10 hours over-time), and gets
paid $10 per hour and time and a half for
over-time pay; what is his gross pay for the
week?
• A: 40 hours X $10 per hour = $400
• 10 over time hours X ($10 X 1.5) = $150
• $400 + $150 = $550 gross pay for the week
Gross Pay vs. Net Pay
• Gross pay is the amount of pay before
withholdings (taxes withheld by the federal
and state government).
• Net pay is your take-home pay. The amount
that your paycheck is written to you for (this is
after taxes have been taken out).
Your Turn
• 1. Jen worked 48 hours last week. She makes
$22/hour and earns time and a half over 40
hours. What is her gross pay for last week?
• 2. Carl earns $14/hour. His work schedule last
week is as follows: Mon. 8am-4pm, Tue. 8am6pm, Wed. 7am-4pm, Thurs. 8am-7pm, Fri.
8am-6pm. Carl does not get paid for his 1 hour
lunch break each day and earns time and a
half for any hours worked over 40. What was
his gross pay last week?
Your Turn
• 3. Kim is a salaried employee and earns
$42,000 per year. Based on a 2,080 hour
schedule and a bi-weekly pay period, what is
the gross pay of each of her paychecks?
• 4. Aaron wants to figure out how much he
earns hourly if he makes $80,000 per year, and
works 50 weeks per year and 50 hours per
week. What is his gross hourly wage?
Answers
• 1. $22 X 40 hours = $880
(1.5 X $22) = $33 per hour (time and a half)
$33 X 8 hours = $264
$880 + $264 = $1,144.00 gross pay
• 2. Remember he
doesn’t get paid for
lunch.
•$14 X 40 hours = $560
Mon= 7 hours
Tue = 9 hours
Wed = 8 hours
Thurs= 10 hours
Fri = 9 hours
Total Hours = 43
Hours
•$21 x 3 hours = $63
•(1.5 * $14 ) = $21
•$560 + $63 = $623 gross pay
• 3.
$42,000 / 26 paychecks per year = $1615.38
• 4.
$80,000 / 50 weeks per year = $1600 per
week
$1600 / 50 hours per week = $32 per hour