Question: What's the Difference Between Salaried and Hourly Employees?
Employees are categorized both on the type of work they do, and the ways in which they get paid. In some cases, employees are also categorized based on whether they receive an employment contract.
The terms "salaried" and "hourly" refer to how employees get paid.
A salaried employee is paid based on an annual amount, called a salary. This salary is divided between the pay periods (as determined by the company) for the year, and based on a 2080-hour year. Some salaried employees are given an employment contract. 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.
An hourly employee is paid based on an hourly amount. Hourly employees don't have a contract, and are only paid for hours worked. 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.
There is no requirement that an hourly employee receive a specific number of hours of work a week. Employees who work less than full-time are considered part-time, and they may have different pay rates, benefits, and paid time off than full-time hourly employees.
Example: 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.
Example: 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.
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 above, 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.
What Determines if an Employee is Salaried or Hourly?
The distinction between salaried and hourly employees is based on the type of work done by these employees and their status as exempt or not exempt from overtime.
If an hourly employee works more than 40 hours a week, he or she 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.
Federal wage and hour laws expect that all employees will receive overtime, but some employees are considered to be exempt from overtime. Professional employees, managers, and supervisors (salaried employees) are considered as exempt from overtime.