Hiring workers raises a variety of questions that go beyond just their expense. While it might be easy to calculate the dollar cost between a salaried employee and one who’s paid by the hour, that shouldn’t be your only reason for choosing how you’ll bring staff on board and compensate them. Understanding the benefits and downsides to paying salaries or wages can help you make the best decision for your business.
Hourly workers are paid by the number of hours they work. Their pay is pre-determined, with different hourly amounts for straight, overtime, weekend and holiday hours worked, based on your labor agreements. Hourly workers fall under state and federal labor laws regarding how you must pay them, in terms of minimum wage and overtime laws. If you have a labor agreement with your hourly workers, you might have contractual obligations regarding guarantees of hours, benefits, paid time off and seniority.
Salaried employees are paid a fixed annual compensation, regardless of the number of hours they work. Paying a salary helps you attract skilled workers who are in more demand and gravitate to jobs with higher pay and benefits, more job security and better working conditions. Salaried employees primarily include managers, executives and staff-level positions that require specific skills, such as graphic design, computer technology, accounting, human resources or marketing. These employees often work longer hours than salaried workers, including some evening and weekend hours.
Hourly Employee Benefits
A benefit of paying hourly wages is you can reduce your costs when sales are slow by scheduling hourly employees for fewer hours, depending on your contracts with them. If employees can’t rely on a minimum annual wage, you might lose them, so part-time employees are more likely to accept temporary cuts in hours. Hourly employees at small businesses often don’t receive benefits such as health insurance or a 401(k) match. Hourly workers at businesses that need to keep their workers year-round typically receive benefits, paid time off and retirement contributions. Salaried employees must meet specific Fair Labor Standards Act guidelines to be exempt from minimum wage and overtime requirements, while hourly workers do not.
Salaried Employee Benefits
With salaried employees, you fix your labor costs at the beginning of the year, helping you create more accurate budgets so you can set prices that help you make a profit. Because salaried workers carry more responsibility, they often work more than a 40-hour workweek, pitching in to help by staying past 5:00 p.m., working evening hours and putting in time on the weekend.