Understanding the Advantages and Disadvantages of a Monthly Salary or Hourly Employees for Business Owners
Businesses world over have different types of expenses and costs that they have to bear in the course of their operations. While all of these costs and expenses are important, one that can really be tricky is employee wages.
Employee wages is not something that is always totally dependent on the employer. There are usually government regulations that demand a minimum level of pay that all employees must adhere to. This is what we commonly refer to as minimum wage and you can learn more about it here. In addition to this, an employer also has to properly balance the pay structure of the business to ensure that while workers are sufficiently motivated by their pay, the business does not run at a loss as a result of this.
Given all of the above, it is therefore very important for employees to carefully plan their payment structure to ensure the best outcome for both the business and its employees. This is why in this article we will be looking at monthly and hourly pay options as a way of providing employers with information that will help them arrive at the best structure for their businesses.
Difference between Monthly and Hourly Pay
The wage or salary that an employer pays the employee is an obligation that is agreed upon at the point of employment. This agreement could be based on an hourly arrangement or a monthly one. To get a good understanding of the two, we will look at each one separately.
Under this type of arrangement, a worker is paid an annual wage which can be split into weekly, fortnightly or even monthly payments. The installment in which this annual pay will be disbursed will be dependent on the agreement with the employer at the point of employment.
Generally, workers in this category meet the following criteria:
- They do not need to punch in or out.
- They are required to complete their assignments without regard to how long it takes them to do so.
- They may also be required to fill in any position that may be vacant at any time.
- Regardless of how long they work, they cannot claim overtime pay.
- They enjoy benefits such as annual vacations, 401k plans, health insurance coverage and more.
- They are usually able to negotiate higher pay because they are highly skilled professionals.
Hourly work refers to a work arrangement in which the worker is paid for the exact number of hours worked. To this end, the worker is usually expected to clock in or punch in when they start work and punch out when they are through with work. Their punch in and punch out times will then be used to determine how many hours they worked in a day. This will then determine what they will earn.
Other than this, workers who work a total of number of hours that is less than 40 a week can also be regarded as hourly workers. The same may also apply to those who work a maximum number of hours each day or are paid a minimum wage dictated by law.
The above is just a basic comparison of salaried vs hourly work arrangement.
Which is Best for Your Business?
So how does a business owner determine which option is best for them? The decision on which type of payment plan to choose will largely depend on the kind of staff you are dealing with. Depending on what your business is all about, you could have two types of employees. They can either be exempt or non-exempt employees. Which category each worker falls into will determine which payment plan will be best for them.
This type of staff is best paid a fixed salary because they do not work fixed hours and are exempt from overtime payments. This is the kind of worker who you will find checking emails at 1am and responding to or making phone calls at any time of the day. You could also find them coming into the office at weekends. All of these do not change the salary they get at the end of the month. In some cases though, bonuses may be paid for performance but this is not a salary.
In this category, you will usually find professionals like lawyers, consultants and management level workers. Any employees of yours that fit these criteria will be best paid a fixed salary.
This class of workers will only be required to work fixed hours on any given day regardless of outcomes. Take for example a receptionist, a gas station attendant or a waiter at a diner. While you can actually pay these ones a fixed salary especially if their hours are fixed, they are usually best paid hourly because the number of active hours they will work may not be fixed. This then means that they are not exempt from making claims for overtime payment.
You can get a full explanation here: https://fitsmallbusiness.com/salary-vs-hourly-pay/.
There are definite benefits to paying hourly or monthly. It all depends on the staff and the job they do. Carefully look at the service offered, how definite the hours are and the value the staff brings.
Highly valuable staff should be placed on a monthly salary with all the benefits that come with it while lower cadre workers who are easily replaceable can be placed on hourly pay so you pay for exactly the work done.