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Some companies give employees the option of an hourly-based pay or a set salary when they are hired or promoted. Time-based pay means the employee is paid with a set dollar rate per hour he works. A salary-based employee has a standard monthly or weekly payment, regardless of the number of hours he works. An employer has to factor in the cost of overtime to time-based employees, but salaried employees are not compensated extra for working additional hours, nor is their pay reduced for working less than 40 hours.
Advantage: Work Paid
An employee who earns her income on a time-based basis will be paid for the work she puts in. That means that if the employee is required to work additional hours or on her day off, she will be paid for her extra work. If working on a salary, an employee is not be paid for additional hours or days worked. Time-based employees are more likely to feel appreciated for their hard work from the extra pay, especially when they are required to work additional hours, whereas a salaried employee is not compensated for putting in additional hours.
Advantage: Employer Flexibility
A time-based pay employee is paid per hour and has a set number of hours per week that he works. This can create flexibility for an employer who has to juggle around several employees and schedules. As long as time-based employees meet their hourly requirements for the week, their schedules can typically be rotated or adjusted.
Disadvantage: Income Can Vary
A time-based wage requires the employee to work a set number of hours per week in order to earn her monthly income. Therefore, if the company needs to cut back an employee’s hours, she will not earn the income she intended to for the month. This can lead to an employee feeling less secure in her job and financial situation.
Disadvantage: Costly for Company
An employer needs to use the most cost-effective ways to administer payroll and keep the company moving. Time-based pay can be more costly in the process to figure out an employee’s paycheck each pay period. For example, a time-based employee may clock in and work 38.6 hours for one week. A payroll specialist or the owner will then have to calculate his hourly earnings, calculate and deduct taxes, and then come to a paycheck amount. Even with automated payroll systems, it takes time to enter the number of hours and verify them, whereas a salaried employee has the same pay every pay period, regardless of the number of hours she works.