What is a Salary? Meaning, Example & 10 Facts

An annual wage is the amount of money an employer pays you for the work you perform during the year. Even if you are paid every month or twice per month, it is still necessary to know your yearly pay for tax purposes or in the case that you apply for another employment. Continue reading to learn all you need to know.

What is a salary?

A salary is a regular payment made to an employee for performing full-time employment. Employers normally pay wages monthly or biweekly, while some firms pay salaries annually. Your work contract should include the amount and frequency of your salary.

Each paycheck consists of a specific amount. For instance, if your annual pay is $60,000, you will receive $5,000 every month before taxes. This is known as gross pay, whereas the amount after taxes is known as net pay.

What is a Salary?

Numerous major companies establish a wage range for each position. The salary range is often derived by comparing employment type, level, and location to industry norms. In addition to education, experience, and length of service, salaries are influenced by a person’s level of schooling and length of employment.

Additionally, supply and demand affect salary ranges. In general, you will receive better offers in regions where there are several openings for occupations comparable to yours.

What Is a Salaried Employee?

If you are a salaried employee (as opposed to one who is paid an hourly wage), you will get a defined amount of income monthly or less often. Employees who are paid on a salary basis receive their full compensation regardless of the number of hours worked per week.

How Does Being a Salaried Employee Work?

Typically, salaried employees receive a regular, biweekly, or monthly payment. Their income is frequently augmented by paid vacation, holidays, health insurance, and other perks.

According to the Fair Labor Standards Act, employees who are paid a salary are typically considered exempt employees, or employees who are not eligible for overtime or minimum pay (FLSA).

To be exempt from federal overtime obligations as of January 1, 2020, employees must earn at least $684 per week ($35,568 per year), receive a pay, and perform specific responsibilities (as specified by the FLSA)

What is a Salary?

However, several states have passed more generous overtime rules and raised the bar for salaried workers to be eligible for extra compensation. In these areas, the applicable standard (federal or state) is the one that pays the greater sum. Consult your state’s labor agency for the latest overtime provisions in your region.

How Does a Salary Work?

When you receive a salary, your cheque is always for the same amount. The yearly pay is a term of your employment, and you will continue to earn it as long as you maintain the same position or until the conditions are renegotiated. It is a form of implicit expense.

There may be disadvantages, though. While salaried employees receive a fixed rate of income, they also have defined obligations and tasks that must be met or performed, even if it means working longer hours or weekends on occasion. In certain situations, this might make it more challenging to divide business and personal time.

How Does Hourly Pay Work?

As an hourly employee, you get compensated for all hours worked. If an employer desires more of your time, they must compensate you accordingly.

Legal overtime is time and a half; some companies may pay extra time for holidays, but it’s not required unless it’s included in your employment contract. If you work in a well-compensated sector with frequent overtime, you may take home more money than if you received the same salary.

There is also a component of lifestyle. In general, hourly workers will have a better time separating work and home life. After work, people can devote their time to family, hobbies, or a second employment.

Unfortunately, hourly pay increases your vulnerability. When regulations change or a firm experiences difficult times, hourly employees are frequently the first to suffer the effects. It is simpler for an employer to reduce your hours until business improves than to cancel your paid employment entirely. Some of these dangers could be mitigated for hourly employees who are unionized.

There may also be implications for eligibility for healthcare coverage. Firms with 50 or more workers are obligated to offer healthcare to full-time employees, who are classified as those working 30 or more hours per week, hence some businesses limit hourly employees to less than 30 hours per week to evade the requirement.

What is a Salary?

What determines salary rates?

In addition to supply and demand (market factors), tradition and regulation affect compensation. In the United States, for instance, wage levels are mostly determined by market forces, but in Japan, seniority, social structure, and tradition play a more significant impact.

Even in societies where market forces predominate, research have revealed that there are still inequalities in how monetary compensation is handled for employment based on gender and race — males tend to earn more than women, and white employees have higher average wages than those of other ethnic groups.

In 2007, the United States Bureau of Labor Statistics stated that women of all races earned 80% of the median pay of males. Although the gender gap has narrowed marginally since then, experts estimate that complete equality will not be achieved for at least another half-century.

No salary may be lower than the minimum wage, if one exists in the nation. If the minimum wage is $10 per hour and the employee works 40 hours per week, his or her annual compensation cannot be less than $20,800 ($10 x 40 hours per week x 52 weeks per year).

Difference between salary and wage

Salary and wages are frequently synonymous, and in many circumstances they have the same meaning, but not always.

A pay does not fluctuate weekly or monthly. Annual salaries are calculated, split by twelve, and paid monthly. In certain nations, December pay is doubled; in these circumstances, the yearly salary is divided by thirteen and two months’ income is included in the December payment.

The number of hours worked in a given week, fortnight, or month is used to determine wages. Employers pay compensation weekly, biweekly, or monthly based on the number of hours performed by the employee. This is not the case with salaries; an employee’s monthly salary remains constant.

For example, managers are always paid a salary and never wages. Their regular monthly paycheck is unaffected by overtime work. Typically, production-line employees and other blue-collar workers receive overtime pay — their ‘wages’ vary based on the number of hours they worked that week or month.

What is a Salary?

If an office worker earns $60,000 per year, it is more common to state “His pay is $60,000 per year” than “His wage is $60,000 per year.”

There is no requirement for salaried employees to sign a time sheet, unlike hourly workers.

Every hour of extra labor is normally compensated at time and a half for salaried employees. Some firms may even pay double hours on weekends and public holidays. When I was a student, I recall working at a gas station on Christmas Day and being paid four times as much.

Salaried Employees vs. Hourly Employees

Need to maintain a time sheet

Receive a set wage regardless of the number of hours worked, typically without overtime compensation.

There are several distinctions between paid and hourly employees.

First, a salaried employee receives a predetermined amount of money, whereas an hourly worker earns an hourly salary for each hour worked. Therefore, salaried employees who fulfill the criteria for exempt status are not required to report their hours in the same manner as hourly employees. For instance, they are not required to sign daily timesheets.

The majority of paid exempt employees do not get overtime compensation. Regardless of the number of hours worked throughout the workweek, salaried employees are paid their compensation.

This indicates that many high-paying occupations do not earn overtime compensation for working more than 40 hours per week. Nevertheless, certain lower-paying occupations are nevertheless eligible for overtime compensation under federal and state law.

Hourly workers, on the other hand, often get 1.5 times their hourly compensation for each hour of overtime labor. Some employers pay extra time during holidays, but this is not required by law.

In addition, the majority of salaried employees are deemed exempt, whilst the majority of hourly employees are regarded non-exempt.

What is a Salary?

However, there are exceptions to this rule. There are, for instance, exempt personnel who are not salaried (such as those who receive a fee for a particular job, like a computer technician). There are also paid non-exempt employees whose responsibilities come under the criteria of non-exempt.

Why is important to understand salary and hourly pay?

Understanding the difference between salary and hourly income is vital, especially when discussing wages for a new position. Understanding the distinction between a salary and an hourly income will assist you in selecting the most suitable employment for your requirements.

Benefits and downsides of salary and hourly pay

The benefits of salaried versus hourly remuneration are distinct. Depending on their sector, demands, and schedule, some individuals choose hourly jobs, while others may seek salaried work. Let’s examine the pros and downsides of both methods of compensation.

The Pros and Cons of Being a Salaried Employee

Pros Explained

Generally, salaried employees receive a predictable, specific, and anticipated amount of money in each paycheck. This might create a feeling of safety.

Additionally, you are more likely to obtain employee benefits if you have a paid employment, particularly a full-time salaried position. These perks frequently include retirement contributions and paid vacations in addition to healthcare.

What is a Salary?

Additionally, paid occupations typically have a higher perceived prestige and job names that appear more professional. A work history comprised of professional job titles might serve as a more marketable basis for future career advancement.

Cons Explained

If you are a salaried employee who is exempt from overtime compensation, you are normally unable to earn extra pay.

Generally, in an asalaried role, you are expected to do whatever it takes to fulfill duties, which means you may frequently work longer hours for no additional compensation.

Sometimes you may be asked to bring work home or work late, which can make it more difficult to separate work and personal life.

What is an hourly rate?

Your hourly rate is the amount of money you earn per hour worked. As an hourly employee, you should be compensated for all hours worked. If an employer desires more of your time, they will need to compensate you more.


In summary, salary is a periodic payment from an employer to an employee, as defined in an employment contract. Contrast this with piece pay, in which each work, hour, or other unit is paid separately as opposed to on a monthly basis.

From the perspective of operating a business, compensation may also be considered as the cost of obtaining and keeping human resources for running operations, in which case it is referred to as personnel expense or salary expense.

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Pat Moriarty
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