Is Hourly or Salary Better? Pros and Cons (2024)

If you’re entering the job market, developing your freelance brand, or making an important career change, you may wonder whether hourly or salary is better.

Employers can choose from various ways to pay their employees, although the two most common are salary and hourly. While your job options may dictate what’s available, you can often seek out opportunities that cater to your preferred pay style.

What’s salary versus hourly pay?

Salaried employees receive a fixed payment at regular intervals, negotiated when you sign your employment contract. Salaries are usually annual amounts paid either weekly, bi-weekly, or monthly. If your annual salary is $96,000, for example, you might receive 12 monthly payments of $8,000, before taxes.

Most employers establish a salary range for each role, pulling from industry standards related to the type of work, skill and education level, location, and industry demand to stay competitive.

The main difference between salary and hourly pay is that hourly-rated workers track their hours and submit the sum to get paid. They’ll still negotiate their hourly rate at the start of the position and receive their pay at regular intervals.

The total pay for an hourly employee fluctuates depending on several factors, including hours of work, overtime, or additional stipends provided by the company.

According to the Fair Labor Standards Act (FLSA), employers must give hourly workers at least $7.25/hour, although many state laws guarantee minimum wages above this. The FLSA considers anything over the 40-hour workweek overtime, and employers must give overtime pay at least 1.5 times the regular hourly rate.

For example, if you work a typical 40-hour work week at an hourly rate of $20 an hour and work 45 hours, you’ll receive $950 for the week: ($20 x 40) + ($30 x 5).

Advantages and disadvantages of salary and hourly pay

As of 2021, the divide between salary and hourly American workers was fairly even: 55.8% are hourly and 44.2% are salaried. Here are some pros and cons of salary versus hourly wages to consider when deciding which side you’d like to be on.

Benefits of salaried positions

• Secure income: You know exactly how much money to expect with each paycheck, making it easier to manage your budget and plan for the future.

• Perks: Although employee benefits like health insurance, bonuses, retirement plans, and paid vacation are optional, salaried workers tend to have better benefits packages than hourly employees, according to Gallup. The same study found that workers with good part or full-time benefits are happier with their jobs.

• Flexible hours: Many hourly positions require clocking in and out of work, which makes working hours more rigid. Salaried employees can often negotiate flexible working hours and get paid no matter what comes up, be it doctor's appointments, childcare responsibilities, and emergencies.

Cons of salaried positions

• No overtime pay: Unless negotiated into the employment contract, salaried workers are exempt from overtime hours. If you work over the 40-hour work week, the extra time isn't reflected in your paycheck.

• Vulnerable to overworking: If you’re paid hourly, you’re incentivized to take on more hours. But if you’re salaried and susceptible to the pressures of a new job or demanding boss, you may find it harder to create boundaries between work and life. You might feel that not putting in extra time could endanger your job security or chances for promotion.

Benefits of hourly wages

• Overtime work: Hourly workers are entitled to overtime pay.

• Don't take work home: While employers will likely expect you to complete an agreed-upon number of hours each week or month, you’re free to manage your schedule when off the clock. Salaried employees might find it harder to clock out when there’s a less rigid schedule and their pay isn’t affected by their hours.

• Holiday pay: Hourly workers are entitled to a holiday premium whenever they work a federal holiday, which often earns them 2 times the regular hourly rate.

Cons of hourly wages

• Less scheduling flexibility: Because hourly workers’ schedules often fluctuate from week to week, you might find it harder to accommodate family responsibilities, medical appointments, and other obligations. You can’t schedule a dentist check-up ahead of time if you don’t know when you’ll be free.

• No work, no pay: Unless otherwise stipulated in your contract or regulated by your state, you don't get paid when you don't work. According to Pew Research, the higher the hourly pay, the higher the probability of paid time off — but only if this is negotiated into your contract. In the U.S., employers don’t have to provide paid time off, so when you’re not working you’re not paid.

• No set schedule: The U.S. Department of Labor allows employers to decide the schedules and number of hours given to employees, meaning they can change an employee's work schedule without notice or asking for consent. Fluctuation in how many hours you work from one week to the next significantly impacts how much you make each month.

If you’re wondering how to convert your hourly compensation into a salaried position, if possible, approach your manager to propose they offer you a new contract.

This possibility depends on your job type. For example, if you’re a freelance contractor, you might not have one manager to approach and can’t shift into salaried work.

Why are some jobs paid hourly and some by salary?

How you’re paid depends largely on the nature of your work and how much you make. Employees generally need to make at least $35,568 in income and work independently over 50% of the time to be paid a salary, according to the FLSA.

For positions paying minimum wage, you won’t earn enough at 40 hours to make salary until you start working overtime.Businesses with small budgets or inconsistent revenue also benefit from hourly employees, as they have an easier time limiting employee hours to save revenue.

Other types of wages

Freelancers and contractors have more autonomy over developing their small businesses and choosing whether to charge hourly or by the project.

Here are a few details to consider.

Hourly rates for freelancers

Explaining what your pay rate means to a potential client is easy with hourly rates. Time worked equals time paid. But you should also consider the following:

• Extra time, extra pay: An hourly rate guarantees you’re paid for all the time spent working for a client (as long as they comply with your invoices and pay you). While you might estimate the time a project will take at the start, what you invoice at the end is what you’ll be paid, unless you’ve chosen to be paid upfront.

• Demand-based pricing: Similar to formal work, you’ll likely choose your rate based on industry standards and your experience level. But working on your own gives you the freedom to choose clients. If you’re in high demand, you can demand more money or prioritize clients willing to pay higher rates.

• Tracked hours: Charging hourly means tracking your hours and, in some cases, presenting them to your client, which becomes complicated if you’re working on multiple projects. Likewise, it’s not easy to track overly communicative clients that frequently call, email, and message you.

• Increased skills, stagnant pay: As you increase the merit of your work, you'll likely deliver the same performance quicker and more efficiently. Adjust your prices accordingly. You shouldn't get paid less for doing your job better.

Project-based rates for freelancers

Project-based rates are attractive for freelancers and clients alike, as both parties know exactly what they’ll get from a transaction. But it's a double-edged sword, and freelancers must be extra careful to properly arrive at a set amount.

Here are a few things to consider:

• Defining rates: An entry-level freelancer may struggle to understand their work's value or market standards. Likewise, a beginner may not know how to anticipate hidden administrative tasks or creative processes. And new project types bring extra work that’s difficult to predict. If you’re unsure how to price, tap into your personal network and compare industry standards.

• Different projects, different rates: Fixed amounts for individual projects allow you to price projects based on their complexity, required expertise, or resource needs. As you get faster and more efficient, your know-how is rewarded. Your time also remains valuable no matter how long you work on a project.

• No time tracking: Tracking your time takes time. And you may spend extra time writing invoices, as some clients want to know what you did during billed hours. Project-based work allows you to spend all your time on your work.

• Thorough contracts: Freelancers that work with project-based rates need to draft contracts that clearly communicate the scope of work. Clients must understand exactly what they're being charged for. And clear contracts stipulate what’s charged separately, like extra revisions, same-day turnaround, and other unpredictable tasks.

Get paid on your terms

Deciding whether salary or hourly is better depends on what you value and your employee strengths. If you want flexibility, a position that doesn’t require clocking in and out is ideal, and if you’re prone to overworking, hourly rates might be better. If that’s not an option, negotiate overtime pay into your salaried contract.

Ultimately, the choice might not be yours if a dream position dictates your wages. Luckily, there are pros and cons to both, and experiencing either of them contributes to your professional development.

Published March 29, 2023