Pay & Salary

Salary vs. Wage: What's the Difference?

June 29, 2021

The terms salary and wage are often used interchangeably. While they both describe an employee's pay, the way employers calculate and schedule that payment is different. Salary employees usually earn a specific amount over an entire year, whereas waged employees earn by the hour or piece of work. Learning the differences between a salary vs. wage can help you achieve a greater understanding of your income. In this article, we discuss salary vs. wage and the advantages and disadvantages of both.

Salary vs. wage: What's the main difference?

The main difference between a salary and wage is that a salary is paid in fixed increments throughout a year, and a wage varies depending on the time or amount someone works. Salaries are an agreed amount per year and include holiday and sick day benefits. Wages suit employers in specific industries, often those employing staff whose schedules are more inconsistent.

What is a wage?

A wage refers to an amount of money that employers pay their staff by the hour or day. A wage is a fixed rate, so individuals typically receive their pay to reflect the hours or days they worked throughout the week. For example, a retail employee who works 30 hours during a working week might earn $18/hour. After their 30-hour week, they will receive a paycheck showing a gross wage of $540 (30 x $18). If the employee worked 25 hours instead, their pay would equal $450 (25 x $18) at the end of the working week.

For workplaces that may need employees full time but operate on wages, companies can turn a salary into an hourly wage. For instance, consider a warehouse that wants to employ a manager for an hourly rate, that would equate to $65,000 per year on a full-time schedule. The employer can divide the expected salary by the number of weeks in a year (52) and 40 hours in a working week. The manager wage would equate to $31.25 per hour. The amount the manager earns is now variable, depending on how much they work.

Types of wages

Multiple types of wages reflect how a wage payment is measured. Below we explain the two main types of wages:

Time rate

A time rate means that a worker will get paid for the amount of time they work, usually calculated per hour or per day. The sum of the hours or days they work is what their paycheck will reflect. In specific industries, casual or part-time staff often use time rates.

Piece rate

A piece rate is when a company pays workers for each piece of work they complete, regardless of how long it took. Piece rate workers agree on a rate for each piece, task or project. Piece rates are popular for consultants, contractors and freelancers who work on projects and tasks rather than working in-house.

What is a salary?

A salary is the amount of pay for an entire year of work. It's usually agreed in a job interview between a company and employee and paid in increments throughout the year. Employers usually pay salaries monthly, bi-monthly or weekly. For example, a salary for a geologist might be $124,788 per year. If the employer pays their salary monthly, the geologist is paid 1/12th of their salary every month. This means a geologist will receive a paycheck of $10,399 each month.

A salary is a fixed rate and won't vary from month to month. When searching for jobs, if the amount of pay is for an annual sum per year, it's likely to be a salaried position. As salaries cover an entire year, they also include holidays. Salary employees have a set number of paid holiday and sick days to take throughout the year while still earning the consistent increment payment.

Types of salary

Below we discuss the two main types of salary and what they're used for:

  • Base salary: A base salary, or base pay, is a salary agreed by both parties that doesn't vary over time. It has a payment frequency decided by the employer, which is usually paid monthly.
  • Variable salary: A variable salary is an annual payment that can change depending on an employee's performance that usually includes a base salary agreed between the two parties. However, there can be targets and incentives that, if met by the employee, can increase the overall pay.

Salary vs. wage: Pros and cons

Salaries and wages can support different work structures, which means there are advantages and disadvantages to both. Below we look at the pros and cons of salary vs. wages:

Advantages of earning a salary

The advantages of having an agreed annual salary are as follows:

Consistency

Employers guarantee salary employees a specific amount of money and work every week or month. This offers financial security to employees. Earning a salary can also make it easier to plan expenses throughout the year.

Additional perks

Beyond their pay type, employees earning a salary may be eligible for additional advantages. Salaried employees are entitled to a number of paid days off every year for holidays and sick days, with the exact number of days agreed in the employment contract. Salaried staff may also have the chance to agree on flexible working hours, so employees can work alternative hours or even work remotely when necessary.

More compensation

As salary workers aren't paid on an hourly basis, they're sometimes required to work more than 40 hours in a week. They may also work overtime to get their tasks done. Higher initial salaries can reflect compensation for this extra work.

Disadvantages of a salary

Below we discuss the main disadvantages of working as a salary employee:

Overtime

A potential disadvantage of salaried pay is the likelihood of working overtime. Salary employees are typically responsible for meeting deadlines and finishing their tasks when required. However, employees who earn a salary can earn extra pay for the overtime work they complete, offsetting this disadvantage.

Pay cuts

Salary employees may have their salary reduced when a company goes through challenging financial periods. Waged employees may have their hours cut, but it wouldn't affect their hourly pay. Employers often expect salary workers to work the same amount of hours for less pay when pay cuts are issued. However, salaried employees know their job is guaranteed, despite less pay.

On-call hours

Salary employees that work in particular industries may have to stay on-call throughout the week. This means that they look out for important emails, respond to emergencies or take calls during their personal hours. Salary employees help a business remain functional through their participation in on-call hours.

Advantages of wages

To help you distinguish salary vs. wage further, consider the advantages of waged pay below:

Accurate payment

An advantage of an hourly or daily wage is that employees receive pay for their true work hours. This means their pay is more accurate. If employers ask wage employees to work overtime or do an additional task, they'll be paid extra for it.

Less restrictive contracts

The same contracts do not bind wage employees in the same way as salary workers. There may be a contract between the two parties that confirms the agreed rates, but there's generally no notice period to leave jobs. Wage workers may find better opportunities that pay more for working the same amount of hours. They can take the role straight away because a contract does not bind them.

Less work responsibility

Salary employees can be responsible for the company's growth and could be liable if anything goes wrong. Wage workers have less responsibility and are usually hired to complete manual tasks or specific tasks they're specialised in. This can result in less stressful work for waged employees.

Disadvantages of wages

The main disadvantages of wages are:

Hour cuts

Waged employees may have their hours cut when their employer experiences a challenging financial period. They can have less job security as employers have less of an obligation to provide them with work. This means that waged employees are the first to have their hours cut when employers need to save money.

Inconsistent schedule

Waged employees are not entitled to work the same schedule and amount of hours every week. They may have to place more effort into planning and agreeing on schedules with employers. It can also make it hard for them to plan for future personal events and create structure.

Fewer benefits

Waged employees don't get paid for time off, either for sick days or holidays. This makes it difficult for them to have a security net if they get sick for an extended period. Waged employees may save more to go on holiday because employers don't pay them while they're away.

Is a salary better than a wage?

The better option between a salary and a wage depends on your own career goals and priorities. A salary may be considered better than a wage for career development and job security. So if that's a priority for you, then a salary position may be better than a wage. However, wages offer other benefits that suit some people better. If you're already an experienced professional working as a contractor, a wage can allow you to earn more money in a shorter period. Wages generally involve less responsibility and are typically less stressful than a salary position.

Is a salary based on 40 hours a week?

While many companies may base their salary on 40 hours a week, the national employment standards define full-time work as a 38-hour week. The minimum wage and other requirements for employers are also modelled on a 38-hour work week. However, this is usually with allowances for overtime and reasonable additional hours.

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