Hourly vs. Salary : As a new payroll employer, one of the decisions you have to make is whether to pay your employees by the hour, or on a salary. Conventional thinking may indicate that managers and professionals are on salary, while clerical, technical, and production workers are paid by the hour, but actually any position can be paid on either basis, although you can run into trouble with overtime regulations if you try to pay clerical or production workers on salary.
To determine the approximate equivalent salary for an hourly wage, based on 40 hours a week, 50 weeks a year, double the hourly rate and multiply by $1,000. In other words, $6 per hour is approximately $12,000 per year. $15 per hour equals about $30,000 a year.
In reverse, to get the hourly rate equivalent for a given salary, divide the salary by 2,000. Thus, $40,000 per year equals about $20 per hour.
What are the advantages of paying by the hour?
You know you’re getting what you’re paying for, at least in terms of quantity of hours worked. Unless someone cheats on their hours. It works especially well for positions where the hours are flexible or vary depending on the work load.
And the disadvantages?
Keeping track of hours worked, and having to compute a different pay amount every pay period.
What about paying on a salary basis?
It’s simpler – no tracking hours worked (unless the employee is eligible for overtime compensation, which is not always obvious). And you may get more than you pay for – although in industries that demand long hours, the salaries are usually set to take an over-40-hour work week into consideration. On the other hand, you need to watch for employees who cut corners – in late, out early, and an extra 15 minutes for lunch.