The essential difference between a salary and wages is that a salaried person is paid a fixed amount per pay period and a wage earner is paid by the hour. Someone who is paid a salary is paid a fixed amount in each pay period, with the total of these fixed payments over a full year summing to the amount of the salary. This person is considered to be an exempt employee. There is no linkage between the amount paid and the number of hours worked. Someone receiving a salary is usually in a management or professional position.
For example, if a person has a $52,000 salary and he is paid once a week, then the gross amount of each of the 52 paychecks he receives during the year is $1,000 ($52,000 / 52 weeks). The person receiving a salary is not paid a smaller amount for working fewer hours, nor is he paid more for working overtime.
Someone who is paid wages receives a pay rate per hour, multiplied by the number of hours worked. This person is considered to be a non-exempt employee. For example, a person who is paid a wage of $20 per hour will receive gross pay of $800 ($20/hr x 40 hours) if he works a standard 40 hour week, but will only receive gross pay of $400 ($20/hr x 20 hours) if he works 20 hours in a week. A person who receives wages is also entitled to overtime pay of 1.5x his normal rate of pay if he works more than 40 hours per week.
There is also a difference between salary and wages in regard to the speed of payment. If a person is paid a salary, he is paid through and including the pay date, because it is very simple for the payroll staff to calculate his salary, which is a fixed rate of pay. However, if a person is paid wages, he is usually paid through a date that is several days prior to the pay date; this is because his hours may vary, and the payroll staff needs several days to calculate his pay.
If a person is paid wages and there is a gap between the last day worked for which he is paid and his pay date, that gap is paid in his next paycheck. This gap does not exist for a salaried worker, since he is paid through the pay date. Thus, pay is much more likely to be accrued in a company’s financial statements for a person being paid wages than for someone being paid a salary.
The expression of a person’s pay rate varies depending on whether that person receives a salary or wages. Thus, a person may receive a salary of $52,000, or wages of $25.00 per hour. Assuming a standard work year of 2,080 hours per year, the person receiving wages of $25.00 per hour is actually earning the same gross pay as the person receiving a salary of $52,000 (2,080 hours x $25/hour), though the person earning a wage has the opportunity to earn overtime, and so can be considered in a better compensation situation than the person being paid a salary.Related Courses