What are wages?

Wages are the primary form of monetary compensation for employees and are paid according to the time worked by the employee.

What are the types of wages?

There are five main types of wages:

Minimum wage:  The minimum  wage  is the lowest hourly earnings that are mandated by law. While  federal law  mandates a $7.25 minimum wage,  many states have higher minimum wage rates  .

Living Wage:  While the minimum wage is mandated by law, the living wage is not. The living wage is the minimum amount a person needs to meet their basic needs (food, housing, healthcare, etc.). Paying a living wage ensures that employees earn enough income for a satisfactory standard of living and prevents them from falling into poverty. Living wage ranges vary depending on the cost of living in a particular area.

Prevailing wage:  Prevailing wage is often used for contract jobs between government agencies and outside businesses. Employers use it to set a limit on pay and benefits for a particular class of workers in an area. For example, security guards providing government-contracted services in Chicago may be paid the average hourly rate of similarly-paid employees in that city. Prevailing wages vary by state or city. Some examples of occupations where prevailing wage may be applied include construction workers, mechanics, and urban planners.

Tipped wage:  The tipped wage is a lower hourly pay rate for employees who are engaged in an occupation in which they usually and regularly receive more than $30 in tips per month. Employers must pay tipped employees a  direct wage of $2.13 per hour  , as long as the amount combined with tips is equal to or greater than the federal minimum wage. If a tipped employee's tips and direct wages are less than this limit, the employer must make up the difference. The  tipped wage is higher in some states  , and some require all employers to pay the minimum wage whether or not the employee receives tips.

Overtime pay:  According to the Fair Labor Standards Act (FLSA) , employers must pay overtime pay  to non-exempt employees who work more than the standard 40-hour work week.   Some common exemptions under the FLSA include commissioned sales employees, drivers, mechanics, and salaried employees who work in executive or administrative roles.

How to calculate wages

A salaried employee is paid a salary in dollars per hour worked. For example, you might hire a new employee and agree to pay him $20 per hour.

To calculate total pay, multiply the total hours an employee worked during a pay period by their hourly rate. Let's say you pay weekly and the employee worked exactly 40 hours.
You can calculate their pay using the following formula: 40 hours worked x $20 per hour = $800.

If the employee worked any overtime in a pay period, these wages are calculated at the time-and-a-half rate. In our example, the employee would be compensated for any overtime at a rate of $30 per hour.

How are wages paid?

Wages can be paid at different frequencies, but the most common are the following:

• Weekly (52 paychecks per year)
• Biweekly (26 paychecks per year)
• semi-monthly (24 pay per year)
• Once a month (12 salaries in a year)

Biweekly payments are the most common payment frequency. These wages are often paid a week after the work is completed.

What are examples of wages?

Let's say you have a non-exempt employee who is compensated at $20 per hour and is paid every two weeks. In the last two-week pay period, they worked 50 hours each week.

Therefore, you would compensate them for 80 hours of work at straight time (80 hours x $20 per hour), which is $1,600. They also worked 20 hours of overtime and would be compensated at the time-and-a-half rate of $30. You would pay them $600 in overtime wages for a total biweekly earnings of $2,200.

What is the difference between wages and salary?

The main difference between wages and salary compensation is how wages are calculated and distributed and how overtime is calculated.

Salary calculation

Hourly employees' wages are calculated by multiplying their hourly rate by the number of hours they work during a pay period. In contrast, a salaried employee has a fixed annual income. To calculate their salary, divide the annual salary by the total number of pay periods. For example, if an employee's annual salary is $104,000 and you pay them every two weeks, they will receive 26 equal checks of $4,000.

for a longer period of time

Most salaried employees are not eligible for overtime compensation. Whether a salaried employee works 40 hours a week or 60 hours, they will be paid the same.

Employees with non-exempt wages are eligible for overtime, usually when they work more than 40 hours a week. They will receive one and a half times the rate for any additional hours worked.

Salary vs. Wages: What Are the Pros and Cons?

Below we have listed the main advantages and disadvantages of wages and salaries:

Wage benefits

• Overtime pay:  People who are not exempt and receive a salary are eligible for overtime pay according to the law. Employees usually receive one-and-a-half hourly pay for each overtime hour worked.

Loss of wages

• Lower earnings:  Salaried workers  typically earn less than salaried employees  . Hiring hourly workers can help employers achieve strategic organizational goals at minimal cost.
• Limited benefits:  Compared to salaried employees, salaried employees typically receive smaller benefits packages. For example, organizations may limit these employees' vacation time to specific dates and offer healthcare plans that are restricted to specific physician networks.
• Inconsistent work schedules:  Salaried jobs may involve irregular schedules, such as working shifts. These employees may find it difficult to achieve a healthy work-life balance.

Salary benefits

• Better pay:  Salaried employees typically receive higher incomes than hourly wage earners.
• Better benefits:  Salaried employees may have better benefits than their hourly-wage counterparts, including stock options and more paid vacations.
• Consistent work schedules:  Salaried people typically have a consistent work schedule (e.g., Monday-Friday, 9 a.m. to 5 p.m.). However, they may also be expected to work beyond these hours, especially during times of major organizational change.

Disadvantages of salary

• Lack of overtime pay:  Salaried exempt positions are not eligible for overtime pay. Therefore, some employees in demanding roles may not receive adequate compensation for the hours they work each week.