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Salary vs Hourly Review: Which is the Best?

There is an ongoing debate in the corporate world on whether workers should be paid a salary or hourly pay. The salary vs hourly argument in favor of hourly pay is that workers who earn a salary do not get paid enough for all the time, effort, and extra time that they put into being productive. However, some employers argue that paying an hourly wage places the worker at an unfair advantage and allows them to earn more than the value they have delivered is worth. While there are some job roles for which an hourly pay is undisputed like that of a virtual assistant, some other job roles have been left at the mercy of the employer’s discretion. Let’s take a look at both systems of payments to see if we can solve this dilemma.

How are Salary Earners Paid?

Workers who receive a salary are paid at the end of every month. This income is set at a fixed price from the date of employment till the day of a performance review, after which the employee may be eligible for a salary review. Using this system of payment, the worker is paid the same amount by the end of each month (or week), disregarding whether they met the 40-hours weekly requirement, or not. However, this means that a salary earner will not be paid for any extra time he spends on tasks and other work-related activities. In other words, if the employee has to come into work on an off day, or take on an extra shift to cover for an absent coworker, he will not be paid for it. While this is a gain to the employer, it is a loss to the worker who is giving more time to the company, than was slated in his employment offer. Those in favor of receiving hourly pay in the salary vs hourly debate, view this as exploitation.

What does it mean for a Worker to Receive Hourly Pay?

Workers who are paid hourly, are paid according to the exact number of hours they dedicate to getting a job done. With this system of workers’ compensation, a set rate is agreed upon at the initial time of employment, for example, NGN2000 per hour. This means that for every hour a worker spends completing tasks and attending to work demands, he is paid NGN2,000. In other words, if said employee works for a total of 5 hours, he would have earned NGN10,000 for the day, NGN50,000 for the week, and NGN200,000 for the month. Therefore, if a worker that receives an hourly pay works overtime of 1 hour or more, he would be paid for it. Employees that are paid hourly are often hired on a contract basis and not full-time.

Benefits of Salary vs Benefits of Hourly for an Employer

The benefits of salary for an employer double are the disadvantages of earning a salary for an employee, and vice versa.

Salary

 If you are a business owner, here’s why you should pay your workers a salary:

  • You do not need to pay for overtime work or replacement shifts. This means that you won’t need to worry about hiring more hands in a busy season. For employees, this is a disadvantage because working late hours are inevitable sometimes, and during a busy season, you may need to work twice as hard.
  • The payroll is easier to process since there is not much fluctuation in pay as compared to the hourly pay.
  • Salary employees are more likely to work with the company for longer.

Hourly

Paying your workers hourly is also beneficial to you, because:

  • Hourly workers are usually on contract-based employment, so you are not obligated to cater for health insurance, retirement plans, and other employee benefits.
  • This method comes in handy for busy seasons when the organization may require an extra set of hands. It is cheaper to pay workers for just the busy hours, than have to pay a salary for a month where there were only a couple of rush hours.
  • It is easier to trim a couple of hours off an employee’s work time during retrenchment season to cut costs than to lay off the employee completely because the organization can no longer afford his salary.

Benefits of Salary vs Benefits of Hourly for a Worker

Both systems of employee compensation are equally beneficial to the worker. Here’s how:

Salary

  • Earning a salary brings job security – it is harder for employers to renegotiate a salary than it is to take off some hours from your work time. This is one advantage that is often flaunted to win the salary vs hourly debate.
  • You are guaranteed to earn the same amount of money every month, regardless of how many hours you worked. Therefore, if you work fewer hours than stipulated due to circumstances beyond your control (or within), you can still look forward to the same income. Unfortunately, this also means that if you work more hours than stipulated in your employment contract, you will not get paid for them even if they were necessary.
  • You are entitled to enjoy sponsored benefits from your employer. Hourly workers do not enjoy health insurance, data allowance, or paid time off.

Hourly

  • Your pay is determined by how many hours you work, hence, you get paid for late hours, overtime, and replacement shifts. In other words, more working hours = more money.
  • Hourly workers enjoy a better work-life balance. That is because most employers would rather encourage them to carry work over than indulge in late working hours.
  • There is work flexibility since the employment is contract-based, not full-time – hourly employees can set their own schedule. Unfortunately, hourly workers are often the first employees impacted by a downward trend in the company’s revenue generation. If you belong to a union, however, you may enjoy protection from that.
  • Leveraging the flexibility you get from working for an hourly pay job, you can work multiple jobs.

Switching from Salary to Hourly and Vice Versa

It is possible to switch an employee from hourly pay to a salary one and vice versa as a business owner. However, you need to consider the rules and regulations associated with doing so, before you make the conversion.

Business owners usually switch a worker’s pay from hourly to salary if they value his contribution to the organization and would like to retain him full-time. In such a circumstance, both parties have to agree on a salary pay that wouldn’t be too far from the employee’s total hourly income weekly (or monthly). Most workers who agree to transition from working contract-based with a company to full-time, often request a weekly salary and do not consent to an exclusive contract.

Although it is not common for companies to switch a worker from a salary payment to an hourly one, it can be done. This is usually considered if the company has experienced a boost in revenue generation, and can now afford it. It can also be considered if the workload for the employee is now less than it was at the time of employment.

The switch from salary to hourly will instigate a change in the employee’s job description. This means that you would have to review deadlines for tasks, and state that he would now be paid for overtime. You will also need to determine what the regular hourly rate and overtime pay rate for the employee will be, according to the new terms of employment.

PS: Before you attempt to make the switch from hourly to salary or vice versa, ensure that the employee’s contract allows you to do so.

Should You Pay Employees Salary or Hourly?

There is no concrete answer as to which of the payment systems is best. That is because both can be beneficial to the employer (and employee) as much as they can be detrimental. To help you decide on which system to adopt when hiring, here are a few things you should consider:

1. The workload associated with the job role.

If the job position does not attract long working hours, you should consider hiring the employee on hourly pay. You may also opt for the hourly option if you only need the employee to function as an extra pair of hands for a busy season. However, if the job role attracts longer working hours, you may hire a salaried worker to save costs.

2. Relevant employment laws.

When hiring an employee, you should consider the laws governing the payment of wages before making decisions on the style of payment. These laws also influence employee benefits. The Nigerian Labour Act, for example, states that any contract for an employee to be paid at intervals exceeding one month is illegal. Visit the official website of the Nigeria Labour Congress (NLC) to learn more about these laws.

3. The current trend in the labor market.

The trend of employee compensation for the stated job role is an important deciding factor. If the job role requires hourly pay, such as the position of a sales rep which attracts instant commissions for every sale, the prospective employee may not consent to work for a salary. For job roles without a specific style of employee compensation, however, you should go with the flow and opt for the system most companies have employed. The labor market trend is the best deal breaker in the salary vs hourly debate.

4. Employee benefits and privileges.

The Nigerian Labour Act states that every employee is entitled to 12 days of sick leave for temporary illness. That same employee is entitled to a work leave of at least six working days every year (excluding public holidays). It also states that all female employees are entitled to at least 12 weeks of paid time off as maternity leave. However, if you would like to provide any other benefits (such as health insurance) to your employees, you may decide to pay them a salary instead of an hourly wage to cut costs.               

Note to Employees

Both styles of employee compensation are beneficial in their own ways, so settle for the one that is most suitable for you. Remember that employers will opt for the system of payment that is more convenient for them, you should too. If you prefer a job role with financial stability and job security, you should opt for the one offering a salary. However, if you like a flexible schedule and value a perfect work-life balance more, you should definitely go for the job offer that comes with hourly pay. I hope this article cleared things up for you!

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