What Is Salary? Definition, Types and Examples

Updated 23 May 2023

Knowing the definition of salary, the different types, and how a salary differs from wages is essential in accounting and finance positions. Understanding what an employee earns in a specific job is also helpful for your application or negotiating in an interview. Understanding how to calculate your salary can help you make more informed choices during salary negotiations and job searches. In this article, we explore what salary is, its advantages and how it differs from other forms of payment.

What is salary?

Salary is a consistent payment by an employer to an employee based on a specific position's work and services. Employers usually pay it every month, but some businesses pay salaries weekly, fortnightly, monthly, bi-monthly or even annually. The amount and frequency is part of your employment contract, and it can change during your time working with the organisation, for instance, if you get a promotion or if your weekly working hours decrease. You can also negotiate the salary in an interview.

Each salary payment consists of a fixed amount of money each month. Companies can supplement your income with paid vacations, public holidays, healthcare insurance, travel bonuses and other expense allowances and benefits. Supply and demand, and the industry sector, define most salaries nationwide. Many large employers link their salary ranges to hierarchy and time worked for the company.

What is the difference between salary, wage and remuneration?

Salary is a regular payment agreed upon in an employment contract, and it's linked to the number of hours defined in the contract. Wages are a term that's typically associated with an hourly workforce, and employers must ensure that their rates are equal or greater than the National Minimum Wage. The term remuneration covers both salary and wages, and it's a broader term for all the compensation that employees receive for their services, monetary and non-monetary.

Companies can choose to pay a salary or an hourly wage to their employees. For example, if a marketing firm needs to hire translators for their website at an hourly rate, they need to convert an annual salary to the actual hours required to complete the translation.

Example: $75,000 divided by 52 weeks of the year = $1442.30 divided by 40 hours of the week = $36.05 hourly rate

Therefore, if the translation team, or the individual, needs 20 hours to complete the project at the hourly wage of $36.05, it would cost $721 in total. If the employer chooses to pay the full week's compensation of $1442.30, they would pay for 20 additional hours of production that they didn't receive. This example illustrates why calculating hourly wages is important for individual projects or one-off services.

What is the difference between salary and salary packages?

If an employer is talking to you about a salary, they usually refer to your base starting salary. A salary package includes additional benefits, incentives and rewards, such as annual and sick leave, car allowance, travel expenses, and further compensation and bonuses. It's up to the employer to advertise the salary or the salary package in job ads, but it's more common to do it as a package in order to avoid confusion.

What are the advantages of salary pay?

There are several advantages to salaries, which affect employees and employers alike, and are as follows:

Consistent payroll

If the company choose to pay a specific amount every month to their employees, they benefit from consistency. Every pay day shows the same amount, regardless of holidays, sick days and free days, and employees don't see their payroll reduced in these circumstances. As an employee, a steady income can reduce stress when unexpected expenses come. The consistency applies to payroll departments and the organisation since they also benefit from less administration time and an easier way to pay their employees.

Compensation may reflect responsibility

Salaried team members can take on more responsibility than employees working on hourly wages. Salaried employees sometimes need to work non-traditional hours or longer workweeks, and the employer often compensates this, offering higher salaries to cover these unexpected situations. The organisation indirectly benefits from this, as they can attract better talent for the position, offering higher pay.

More benefits

Full-time, salaried employees are likely to get additional employment benefits such as health care and paid vacation time, among many others. Even if a salaried employee receives less net pay than their hourly job wages counterparts, they can be in a better financial position. Other perks, such as maternity or paternity leave, membership reimbursements, or free childcare, can significantly benefit families.

More career advancement opportunities

A salaried position's responsibilities could be higher than those of an hourly job. It can lead to a promotion to a more advanced position quicker than being an hourly employee. Management roles, for example, are typically required to be full-time salaried employees. If you accept a pay cut to move from an hourly to salary pay, it could benefit your career in the long term.

Related: How To Change Careers

What are the advantages of hourly pay?

The main advantages of working an hourly position are as follows:

Dedicate time to other interests

Having an hourly position allows you to schedule other interests like studying, improving skills, starting a new venture or working for different projects and organisations. Some employees can see this as a disadvantage, but it can lead to more opportunities and more flexibility depending on your context and situation. It can also be the starting point to become a freelancer and work for multiple companies.

Pay reflects overtime hours

Hourly wages directly link to the hours the employees work. If they work overtime, they'll receive pay at the overtime rate. Employees can benefit from this since they know the organisation values their time and services on an hourly basis. They can reduce their stress and increase their productivity because they have a stronger incentive to work more hours if needed.

Fewer duties and responsibilities at work

The company assumes hourly employees can complete the necessary work. For this reason, hourly employees don't have as many responsibilities as salaried employees do. It also works well for employers who require a large part-time or semi-skilled workforce.

Fewer conditions

Companies don't need to bind hourly employees under strict conditions. This flexibility offers them more freedom to move to another job if they wish to. They could also benefit from reduced stress as they can easily look for more work if the project is discontinued, as opposed to full-time salaried employees.

Tips to negotiate a salary in an interview

Negotiating your salary in an interview is a delicate matter. Both parties have expectations for the intended salary, and the negotiation allows each side to present their arguments and defend their reasons. Follow these tips to negotiate your salary in an interview:

Research the market and the company. The supply and demand forces of the market define most salaries. The company and your particular industry, position, geographic area, experience and education are also key to know your salary expectations.
Determine your desired and lowest amount. You should know your desired amount and the lowest salary you're willing to accept before entering an interview. This will grant you the tools to negotiate your salary realistically.
Consider your benefits. When negotiating your salary, consider other negotiable benefits, including paid time off, work schedule flexibility and other opportunities. Introducing a few of these benefits in the conversation might also be a useful tactic to demonstrate your desire to increase your value to your employer.
Practise negotiation skills. Negotiating is a learned skill that you can improve with practise. You can practise with other people before the interview or attend a course to highlight your most valuable qualities.

Is salary pay better than hourly pay?

Salary pay is not better than hourly pay; they are different. You should assess your situation to know what you wish to do in your career. If you prefer to work on several projects at once, hourly pay may align with your preferences. It offers more flexibility and less stress because employers value every hour you spend working with them. You also have the option to work overtime at an overtime rate.

Salary pay is more secure and predictable than hourly pay, but that doesn't mean it's the best choice for every professional. With a salary, you might get more bonuses, and it's something that is easier to negotiate in an interview. You can plan your finances, and there's a lot of potential for pay rises and promotions inside the company. But, whereas a graduate would appreciate a job with a good and stable salary, a senior professional may prefer to work for different jobs that can pay the most based on an hourly rate. Study the options in front of you and weigh the pros and cons to make an informed decision.