Hourly vs. Annual Salary

What is Hourly to Annual Salary?

Hourly pay is the rate paid per hour of an employee's work. Employees who are paid by the hour can receive overtime pay, which is usually their base wage plus 50% (also known as time and a half). 

Hourly employees must be paid in this way for any hours worked beyond the regulated 40 hours per week.

An annual salary is a specific amount of compensation paid per year for work, and covers all the number of hours worked, including overtime. Those who are paid an annual salary generally do not receive overtime pay.

What are the key differences?

The main differences between Hourly and Salary are as follows:

Hourly: 

• Pay varies based on the actual hours worked.
• Overtime pay of time and a half for every hour worked over the regular 40-hour workweek.
• Can leave work responsibilities behind when not on the job.
• Employers can easily reduce work hours when they need to.

Salary:

• Guaranteed weekly wage.
• Overtime pay does not apply.
• Employer-sponsored benefits are offered, such as healthcare coverage, paid vacation time, and sick days.
• It's more difficult to separate work from personal time – more attached to the job.
• There is a sense of job security.

There are pros and cons for both payment setups. For example, employees on hourly pay do not usually receive compensation, such as paid leave or group insurance. On the other hand, employees on an annual salary will not have as much freedom to explore more job opportunities, or set their own working hours.

How do you calculate Hourly to Annual Salary?

To calculate the annual salary, consider the following formula:

Hourly wage x Hours worked per week x Weeks per year = Annual Salary

$15/hour x 40 hour per week x 50 weeks per year = $30,000

Consider the number of days or weeks not worked per year, including vacations, leaves, and statutory holidays. If you don't consider the time spent away from work without pay, the annual salary calculations may be incorrect. If the organization offers payment for leaves, vacations, and holidays, disregard them in the calculation.

Conclusion

Wages are often one of the most significant motivators influencing employment, and there are different payment structures available. When discussing payment structures with employees during the recruiting and onboarding process, make sure to inform them of the different options available to choose from.

For additional information, see terms entitled Hourly to Salary, Hourly to Yearly.