There are several ways for employees to receive compensation for tasks completed. One of the most popular methods is through the use of salary pay. When compared to piece-rate pay, hourly pay, and other approved compensation options, here are the pros and cons of salary pay to consider.
What Are the Pros of Salary Pay?
1. Costs are relatively stable for budgetary purposes.
When employees are paid on salary, then there is a defined budget cost per person. There won’t necessarily be overtime costs or other added labor expenses if their job duties require a more extensive time commitment.
2. It is easier to process payroll.
Salaried employees typically receive the same compensation, no matter what their hours may be. This eliminates the need to punch a clock or keep track of their time, allowing for a simpler payroll process.
3. It has a reputation of prestige.
Employees who earn a livable wage on salary feel proud of achieving this status. It serves as a career milestone and fosters a deeper connection with their employer.
4. It gives employers and employees more flexibility.
Instead of having rigid attendance polices, sick leave days, and other productivity rules, salary pay allows employers and employees some added flexibility to their scheduling. A sick day may be avoided by using “comp time” or by switching a scheduled day to new hours to avoid using the benefits. Shift hours may also be adjusted to accommodate doctor’s appointments, teacher conferences, and other family responsibilities.
5. Salary pay allows employees to plan their own finances.
When you know how much your paycheck is going to be, then it becomes easier to budget their own financial needs. This makes it much easier to plan for retirement, college expenses, or other common household expenses from today.
6. An early shut-down day means a full day of pay.
If the computers go down and everyone gets sent home, then the hourly workers receive a dock in their pay. Those on salary get to go home without the same reduction.
What Are the Cons of Salary Pay?
1. The hourly equivalent of the salary may be below minimum wage.
If you work 80 hours on salary and the 40-hour equivalent of the salary is $14/hour, then the salaried employee would be netting just $7.00 per hour for the work that they’ve performed. That’s below the minimum hourly wage in the US, so the worker on salary pay would be losing money.
2. Overtime and holiday pay are usually excluded.
Although salaried workers do typically receive holiday bonuses and other pay incentives, overtime and holiday pay cannot generally be claimed. Hourly workers on overtime and on a holiday could potentially earn 3 times their normal wage. A salaried worker would be paid the same no matter what.
3. Employers will typically choose the most qualified employee with the lowest salary requirements.
If two employees have equal qualifications for the same job, then the employer will typically hire the person who is willing to take the least amount of money. Even though productivity might be of slightly lower quality, the cost savings from the lower salary will make up for it.
4. Other benefits can sometimes be included in the base salary package.
An employer might also have health insurance or other benefits rolled into the final salary figure. In the US, this would mean a salary package of $50,000 might actually only provide a paycheck salary of $35,000 to the employee. The opposite might also be true. A $75,000 salary might be offered to compensate for an overall lack of benefits.
5. Salary pay is often based on equity instead of complexity.
Many employers come up with a salary offer that is based on what other employees are typically earning. Even if the job is the most complex on the team, the equity concerns will lower the salary offer even if the complexity of the job creates a negotiation opportunity.
6. Many salaried employees only get paid 1-2 times per month.
Hourly workers might be paid on a weekly basis in some industries. For salary pay, it is usually only distributed once or twice per month. This means workers on salary must be fiscally responsible with their budgeting to maintain financial health.
The pros and cons of salary pay can help both employers and employees when all of these key points are addressed. Consider each of them before taking a salaried position or creating one so that the positive aspects of this issue can be experienced.