ARTICLE: Salary vs. Hourly Pay: What Are the Differences?

As noted in the intro, some jobs offer pay on a salary basis, while others pay their employers an hourly wage.  Use the article to answer the following question.

Salary vs. Hourly Earnings: What Are the Differences?

Jennifer Herrity

Updated July 31, 2023

When looking for a new job, compensation is often the deciding factor for many people. When you are hired for a position, you will receive earnings as either a salaried or hourly employee. Understanding the difference between salary or hourly pay can be helpful.

In this article, we discuss the differences between hourly and salary pay, including the benefits and disadvantages of each.

Why is important to understand salary and hourly pay?

Learning about salary vs. hourly wage is essential, especially when you’re negotiating rates for a new job. Understanding the difference between a salary versus an hourly wage can help you choose the best position to suit your needs.

What is an hourly rate?

Your hourly rate is the amount of money you earn for each hour you spend working. As an hourly employee, you should get paid for all of the hours that you work. If an employer wants more of your time, they’ll have to pay you more.

For example, if you work 25 hours and 30 minutes, you’ll get paid for 25.5 hours. If your hourly rate is $17.50, you’ll receive $446.25 for your time:

$17.50 x 25.5.

What is a salary?

Salary is a consistent payment to an employee based on working a full-time position. Employers typically usually distribute salaries on a monthly or bimonthly basis, but some businesses pay salaries out annually. The amount and frequency of your pay should be part of your employment contract.

Each salary payment is a fixed amount. For example, you’ll get $5,000 per month before taxes with a salary of $60,000 per year. This is called gross pay, and the amount after taxes is net pay.

Many large employers have a set salary range for each position. Salary range is typically determined by comparing the industry averages based on position type, level and location. Salaries are also related to your education, your previous experience and the amount of time you’ve worked for a company. Salary ranges are also impacted by supply and demand. Typically you can get better offers in areas with multiple vacancies for jobs similar to yours.

Read more: What is Gross Pay?

ARTICLE: 8 Tips for Budgeting When You Earn an Hourly Paycheck

Read the article and answer the questions below.

https://www.earnin.com/blog/8-budgeting-tips-when-you-earn-an-hourly-paycheck-

April 27, 2021

8 Budgeting Tips When You Earn an Hourly Paycheck

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Everyone constantly reminds you of the importance of budgeting, but how are you supposed to do that when you’re an hourly employee who works a different amount every week? Ask a search engine that sees the future “how to calculate my paycheck hourly”? Ask your shift manager how many hours you’ll be scheduled for over the next three months, knowing full well they haven’t bothered to think that far ahead?

Budgeting on an hourly paycheck can be tricky, but it’s possible. Follow these tips to help you manage your money more efficiently:

Calculate Your Average Hourly Paycheck

Though you don’t have a consistent income, hopefully, it’s somewhat predictable. Most people plan their budgets according to how much money they rake in per month, so you can do something similar and calculate your average paycheck. Add up the number of hours you worked each month over the past several months — do at least six to be safe — and divide by six to get your average hours per month. Multiply the result by your hourly wage to calculate your average hourly paycheck.

For example, let’s say you have a part-time job and worked 120 hours in January, 130 hours in February, 110 hours in March, 100 hours in April, 135 hours in May, and 125 hours in June. That’s an average of 120 hours per month. Multiplied by the federal minimum wage, that’s about $870 per month before tax.

Estimate On the Lower Side

Though you should keep your average monthly income in mind, it’s best to plan your budget as if you’ll make less money that month than more. Save what you make from months when you work more hours to roll over toward the months when you work less. You could put yourself in a precarious position if you plan to have extra cash that you end up not making.

Calculate Your Monthly Expenses

Next, calculate how much you can expect to pay each month for rent, utilities, internet, transportation, insurance, groceries, and other bills. If there’s variation between months, do the same as above and calculate your average essential expenses. This number will give you an idea of what you owe and what you have leftover to save or put toward emergency costs.

Know What Your Pay Cycle Means

A critical aspect of budgeting is knowing when you get paid. There are four common kinds of pay schedules: monthly, semi-monthly, bi-weekly, and weekly. You will have two paydays per month under a semi-monthly cycle or a payday every other week (for a total of 26 paydays per year, instead of 24) under a bi-weekly cycle.

Your pay schedule is important because it affects how you pay your bills. If your rent and utilities are due on the last day of the month, but your paycheck doesn’t come in until the first day of the next, then you need to be sure you’ve saved enough from previous paychecks to cover the entire amount. Should your pay cycle not align with your bills’ due dates and you would be able to cover them if you were paid slightly earlier, you could use an app like Earnin to access your paycheck ahead of payday for hours you’ve already worked.

Get Ahead of Schedule

Though your shift manager may not plan as far ahead as you want them to, it’s still a good idea to get your schedule as soon as it’s out. You also don’t need to know when you work the next month as long as you know how much. Ask your manager for an idea of how many hours they plan to schedule you for. It never hurts to inquire, and if they can give you a ballpark, you can prepare some slight adjustments to your budget.

Figure Out Your Tax Rate

You don’t take home as much as you make — as you know, part of your paycheck goes toward taxes. Taxes vary by income level and your state, so use SmartAsset’s hourly paycheck tax calculator to determine how much you can expect to pay in taxes and budget accordingly.

Another reason to have an idea of your taxes beforehand is because, as an employee, your employer should deduct taxes from your paycheck before sending it over to you. You fill out a W-4 when starting a new job that your employer uses to calculate how much to withhold, so you want to fill it out accurately and avoid paying too much or too little.

Don’t Forget to Save

It’s not said often enough, but it’s true: saving is a privilege. Not everyone has the freedom to put aside money every paycheck, but it’s essential to save whatever you can. Pay your expenses, have a little fun each month, and remember to stash whatever is leftover in a savings account — anything, no matter how minor, is better than nothing.

Adjust As Necessary

No budget made with a fluctuating paycheck will be definite, so be prepared to make adjustments accordingly. Did an unexpected cost arise? Did you work overtime last week? Whether you make more or less money this month than last, don’t be so determined to stick to your original plan that it puts you in a tight spot.

Your income might fluctuate, but as long as you have an idea of how much you make each month and what your expenses will be, you can plan a solid budget that accounts for variations.

Daniel Norris on Unsplash

Please note, the material collected in this blog is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or Services.