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Introduction to Payroll Accounting: Salary vs Hourly Wages



Welcome back! Here we are continuing our series on Payroll Accounting. As you know, payroll and accounting are two areas we are most passionate about. Today I’ll be discussing the difference between salary and wages to help provide some insight, and perhaps help you decide which method of compensation you should provide to your employees.


Salaries can be easily defined as a set unfluctuating rate of pay. Salaries are the gross amount of pay an employee received prior to any withholdings such as taxes, savings plans, or insurance, and are most commonly paid biweekly. The benefits of this form of payment for your business include an ease in accounting as the payrate does not fluctuate and in some cases may save your company money on payroll (more on that later). Employees also enjoy the benefit of know exactly how much their paycheck will be, avoiding any surprises. Since these salaried employees receive the same amount of pay regardless of whether they work 40 hours that week or 50+ hours in a week. This is where you can see your company saving hundreds if not thousands of dollars in payroll. However, it’s important to pay your salaried employees a rate they are happy with and to not abuse them with consistent excessive hours, or they may make them feel cheated


For example, let’s say you hire a marketing executive named Tiffany at a salary of $100,000 per year. This would breakdown to $4,167 every pay period (every 2 weeks). Tiffany is guaranteed to receive $4,167 on her paycheck regardless of whether she worked a total of 80 hours over the 2 weeks or 100 hours. Had she been an employee being paid an hourly wage at the same amount she would be paid $52/hour. Thus, by having Tiffany as a salaried employee you will be saving over $1,000 in those two weeks alone.


Salaried employment is most often associated with “white-collar” positions such as executives, managers, office employees, and other professional or administrative positions.


Wage employees are most often association with “blue-collar” positions and are often times held by individuals in non-management positions. For these employees, their pay is a gross hourly rate. Similarly to salaried employees, wage workers are often paid every two weeks. However, significant differences include the need to track a wage employee’s hours and once he or she has worked over 40 hours in a single week, the company is then responsible for paying overtime, at 1.5 times the employee’s normal payrate.


Depending on your payroll’s budget and overall organizational goals, hiring your employees as salaried employees or as wage workers may work best for you. Let our team of experienced experts help you determine which employment classification would work best for your business. For more information, please click here to schedule a call with one of our specialists today.

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