Deciding Whether to Pay Employees a Salary or Hourly Rate

The Payroll Setup Team

Whether to pay employees a salary or an hourly rate depends on various factors, including the nature of the work, industry standards, legal requirements, and the preferences of both the employer and the employee. Here are some considerations for each:


  • Consistency: Salary payments offer a consistent income for employees, regardless of the number of hours worked.
  • Professional Roles: Salaried positions are common for professional roles such as managers, executives, or professionals where the workload may vary but the responsibilities are typically consistent.
  • Exempt Status: Salaried employees can be classified as exempt from overtime pay requirements if they meet certain criteria outlined by labor laws. This can provide flexibility for employers in managing work schedules without accruing additional costs.
  • Employer Control: Employers have more control over the hours worked by salaried employees, as they are often expected to fulfill the requirements of their position regardless of the specific number of hours worked.

Hourly Rate:

  • Flexibility: Hourly pay provides flexibility for both employers and employees, as compensation is directly tied to the number of hours worked.
  • Non-Exempt Status: Hourly employees are typically classified as non-exempt and are entitled to overtime pay for hours worked beyond a certain threshold as mandated by labor laws.
  • Variable Workloads: Jobs with variable workloads or projects that require irregular hours may be better suited for hourly pay.
  • Fairness: Hourly pay can be perceived as fairer by employees when they are compensated for every hour worked, especially if they have to work overtime.


Ultimately, the decision between salary and hourly pay should be made carefully, taking into account the specific needs of the business, legal requirements, and the preferences of the employees. It's also important to ensure compliance with labor laws regarding minimum wage, overtime pay, and employee classification. Consulting with legal or HR professionals can help ensure that the chosen payment structure aligns with legal requirements and best practices.