Salaried Vs. Hourly Workers: Who Should You Hire?

2024

Written by Asim Qureshi
By Asim Qureshi, CEO Jibble

Hi, I’m Asim Qureshi, the CEO and co-founder of Jibble, a cloud-based time and attendance software. I have several years of experience in building and scaling software products and teams across various industries and markets. Before I founded Jibble, I worked as a VP at Morgan Stanley for six years. I’m passionate about helping businesses improve their productivity and performance through smart employee management practices.

Overview

Hiring an employee is a big decision. Beyond evaluating resumes, skills, and cultural fit, another crucial aspect to consider is the type of employment arrangement you should be looking for whether it’s a fixed salary employee or a more flexible hourly worker.

Both options have their fair share of advantages and disadvantages. As the CEO of a company that’s composed of both full-time salaried employees and flexible hourly contractors, I’ve seen firsthand the benefits and challenges of both employment types. Through this experience, I’ve gained valuable insights into what works best for different roles and business needs. And these insights are exactly what I’ll be sharing in this article.

Read on to learn how salaried and hourly pay works, their key differences, their benefits and drawbacks, and which one is the right fit for your organization. Hopefully, it helps you make the right hiring decision.

This Article Covers

An employee working on their computer in the office. Photo by Andrea Piacquadio

What are Salaried Workers?

Salaried workers are employees who receive a fixed amount of money as compensation for their work, typically monthly. This fixed amount is known as a salary.

A salaried worker’s pay remains the same regardless of how many hours they work, as long as they fulfill their job responsibilities. Salaried workers often have stable employment contracts and may be eligible for benefits such as health insurance, paid vacation days, and retirement plans provided by their employers.

What are Hourly Workers?

Hourly workers are paid based on the number of hours they work. Instead of receiving a fixed salary, they earn a specific amount of money for each hour they work. For example, if an hourly worker’s rate is $15 per hour and they work 40 hours in a week, they will earn $600 for that week.

This type of pay structure is common in jobs where work hours vary, such as retail, food service, and manufacturing. Hourly workers are often eligible for overtime pay, which means they earn a higher rate for hours worked beyond a standard 40-hour workweek.

Salaried vs. Hourly Workers: Key Differences

The main difference between salaried and hourly workers really lies in their pay structure

Salaried employees receive a fixed amount of pay per pay period, regardless of the number of hours worked. This offers financial stability but may require occasional overtime without the added compensation. In contrast, hourly workers are paid for the exact hours they work, providing flexibility in scheduling and often eligibility for overtime pay.

Beyond pay, job responsibilities also differ significantly between the two.

Salaried employees often hold positions with broader responsibilities and higher levels of decision-making authority. They may be involved in strategic planning, management tasks, or supervisory roles that require them to work independently and exercise judgment. In contrast, hourly workers typically have more narrowly defined roles, focusing on specific tasks or functions within a team or department. Their work is often closely supervised, and they may not have the same decision-making authority as salaried employees.

Advantages and Disadvantages of Hiring Salaried Workers

Hiring a salaried worker comes with its fair share of advantages and disadvantages. Let’s try to break them down.

Advantages of Salaried Workers

Disadvantages of Salaried Workers

  • Predictable Payroll Expenses: Salaried workers receive a fixed amount, making it easier to forecast payroll expenses.
  • Fixed Costs Regardless of Workload: Employers must pay the agreed salary regardless of business performance or fewer hours worked.
  • Easier Management of Work Hours: Employers don’t have to track and manage hours worked as strictly as with hourly employees.
  • Less Flexibility in Adjusting Pay: It’s more challenging to adjust salaries in response to changing workloads or economic conditions.
  • Attracts Skilled Professionals: Salaried positions can attract highly skilled and experienced professionals who prefer the stability and benefits associated with salaried employment.
  • No Overtime Pay: This is often seen as an advantage from a cost-cutting point of view, but it can be a real disadvantage too. Employees might feel undercompensated if they frequently work beyond their standard hours without overtime pay. The overall morale of the team can suffer, creating a less positive and less productive work environment, and eventual loss of talent.
  • No Need to Pay for Extra Work Hours: Salaried employees are typically exempt from overtime pay, meaning employers can get more work done without incurring additional labor costs for overtime.
  • Regular Salary Reviews: To stay competitive and maintain pay equity, salaries for salaried employees must be regularly reviewed and adjusted based on market research and internal factors. This process demands significant resources and continuous organizational commitment.

    Advantages and Disadvantages of Hiring Hourly Workers

    To better assess if an hourly worker is what your organization needs, here are some of their main advantages and disadvantages:

    Advantages of Hourly Workers

    Disadvantages of Hourly Workers

    • Cost Control: Employers pay only for the hours worked, helping to control labor costs during slower periods
    • Overtime Costs: If hourly workers exceed their standard hours, employers may incur additional overtime expenses.
    • Flexible Scheduling: Employers can adjust work hours based on business needs, for better management of slow periods.
    • Inconsistent Availability: Hourly workers may have varying schedules, leading to potential gaps in coverage or difficulties in scheduling.
    • Scalable Workforce: Employers can easily increase or decrease the number of hourly workers based on business demands.
    • Training Costs: Frequent turnover among hourly workers may result in higher training and onboarding costs.
    • Easy to Track Performance: Performance can be easily measured based on hours worked and tasks completed within those hours.
    • Dependence on Timesheets: Reliance on accurate time tracking can lead to issues if timesheets are not properly managed or verified.

      Salaried Vs. Hourly Workers: Who Should You Hire?

      Now that you know all about salaried and hourly workers and their differences, the big question is: Who should you hire?

      When deciding between salaried and hourly workers, it’s essential to tailor your choice to each role’s specific needs and the broader goals of your business. Here are key factors to consider:

      • Role Responsibilities: Evaluate the seniority, level of experience, and the nature of the work involved. Senior or specialized roles often lean towards salaried positions, while roles requiring direct oversight or part-time availability may be better suited for hourly compensation.
      • Work Time Requirements: Consider how the role’s workload fluctuates. Hourly pay aligns well with positions where there’s only seasonal demand or fluctuating work volumes, ensuring you only pay for actual hours worked. In contrast, salaried positions are more suitable for roles requiring consistent availability and dedication, even if the workload fluctuates.
        • Market Compensation Norms: Research how similar roles are compensated in your industry. Industry standards can guide whether a position is typically salaried or hourly.
        • Financial Considerations: Assess your budget and financial resources allocated for the role. If you’re capable of committing to paying a fixed amount every month plus benefits, a salaried position might be ideal. Salaried roles typically attract more experienced professionals and provide greater stability for both the employee and employer. However, if your budget is more variable and closely tied to business revenue, hiring hourly workers could offer the flexibility to scale labor costs in line with your income.

        These are all equally important factors worth considering during the hiring process. Another thing to consider is the work environment and company culture. Hourly workers often do well in flexible and varied schedules, which suit remote roles. Salaried positions are better for roles that need a stable, long-term commitment and a structured schedule, creating continuity and reliability in the team.

        Learn more about hiring with our Ultimate Hiring Guide for US Employers.

        Can Hourly Workers Ever Turn Into Salaried Employees?

        Definitely. There are instances when an hourly worker performs well enough with their tasks that an employer would want to absorb them into the company and offer them a salaried position. This transition can be a strategic move for both the employee and the employer. For the employee, it provides job stability, benefits, and a clear career path within the company. For the employer, it secures a reliable and skilled worker who has already proven their capabilities and fits within the company culture.

        Reclassifying an hourly worker to a salaried position is entirely legal, but it should be done with careful documentation to ensure compliance with the Fair Labor Standards Act (FLSA). Employers must clearly document when and why the change was made, providing evidence to the Department of Labor’s Wage and Hour Division if necessary.

        It’s advisable to avoid frequently switching an employee’s classification between hourly and salaried, as this could confuse the employee and potentially raise suspicions with the DOL. Before making the change, review the FLSA duties test to ensure the new classification aligns with the job description.

        Final Thoughts

        Now that you understand the distinctions between salaried and hourly workers, you can better optimize your workforce composition to drive productivity and achieve your business objectives effectively.

        Ultimately, the decision between salaried and hourly workers should align with your business strategy, financial capabilities, and the specific demands of each role. You can even hire a mix of both to best meet your organizational needs. 

        Want to learn more about salaried employment? Check out our comprehensive guides covering what salaried employees are, salaried employee rights, and why time tracking is necessary for salaried employees.