What are the differences between wages and salaries?
During the recruitment process, it is likely that your employees will have questions around pay and the benefits that they will receive, so you should be prepared to answer them. Employee wages and salaries are a form of basic pay, and you may choose to offer other incentives on top of this.
A salary is a set pay, which can come in weekly or monthly instalments. It is paid regularly, straight into the employee’s bank account, by the employer. With a salary, your employees earn a set amount per year. A salaried position will be based on a set amount of hours per week, as stipulated in the employment contract.
Wages are paid on a daily or hourly basis by the employer for work completed over the course of a week or day. Jobs with payment by wages are more common in retail positions, for example. Waged staff are not bound by contract to stay in employment with you. If you’re reviewing salary levels against minimum‑pay thresholds, you can estimate an hourly equivalent by comparing the role’s contracted hours to total pay.
You can work out salary by the hour using a simple calculation:
- Calculate how many basic annual hours your employee will be working;
- Divide this by how many times an employee is paid per year to get the average number of hours worked per pay packet;
- Then divide their total pay for each pay packet by the number you get in step 2.
With waged work, you are deciding a worker’s pay on an hourly basis already. Therefore, it is much easier to check that you are paying them at least the minimum wage.
Pros of salaried pay
You should consider paying your staff a salary if they are in full-time employment with you. This is because salaries give your employees a steady income, so stating a salary or salary band during an interview or in a job description will be attractive to your candidates. Your employee’s salary should be stated in a contract when you first hire them, plus any benefits that come with being a full-time employee with you. Decide what salary is appropriate for your organisation by comparing it to average salaries on the job market.
One main difference is that salaried roles often don’t include separate overtime rates, whereas hourly roles typically do. How overtime eligibility and time‑tracking work can vary by role, contract, and company policy; make sure your approach is clearly set out in your documentation. Over time, this might make overtime complicated to track and therefore compensate. This might mean that having your full-time employees on a salary is a cheaper option overall. However, you should make sure that you have other incentives such as perks or training in place to keep your staff engaged. Show salaried employees that they are valued by offering them flexible working and a strong work-life balance . After all, you will save money too if your employee retention rate is high.
Cons of salaried pay
Employees on a steady salaried income are more likely to stay loyal to your business. However, salaries can be more costly to your business than wages. So you should factor in the costs of salaried pay for employees if you decide to take this option.
However, since your salaried employees are on a fixed annual income, they will always be paid this amount regardless of whether they do fewer hours during one particular week. Your employees might leave early or come in late some days, in which case they will still be paid the same rate.
Your employees may be expected to work a 40-hour working week, however, their take-home pay is not dependent on the number of hours actually worked. However, you can write into their contract that they must work a certain number of hours a week to receive their salary.
Pros of waged pay
Waged pay is attractive to workers who want to be paid for each completed hour. With a waged salary, they are paid by the hour rather than for the work that they have done. This means that if workers complete any overtime hours, you need to record them. Where overtime is worked, set out in your policy how it’s recorded and paid (for example, standard rate, enhanced rate during peak periods, or time‑off in lieu), and apply it consistently.
Cons of waged pay
Waged workers do not receive the same benefits – such as healthcare, discounts or other perks – as your full-time employees, which means that they may only work for you temporarily. If your waged staff are developing an increasingly important role in the functioning of your business, consider offering them a full-time job. As waged workers do not sign a contract saying they have to work for you, they may leave at short notice to work for another employer. This is because they do not have to complete a set notice period.
By UK law, waged workers are entitled to some of the same rights as your full-time employees, such as safe working conditions and being paid the minimum wage.
Both waged pay and salaried pay have pros and cons, depending on the organisational structure of your team. The key difference between wages and salary pay is that salary is fixed on an annual basis, whereas a wage is by the hour. Salaried pay may or may not be the cheaper option, depending on how much overtime your staff are doing, so take a closer look at the numbers and consider whether it is cost effective for your business.
Waged pay is usually better suited to casual or temporary staff who are not on a contract with you. They will not receive all of the same benefits as your full-time staff, although they are entitled to some basic benefits, such as safe working conditions and the minimum wage. Compensating dedicated staff with a steady income will help you to attract and retain the best staff for your team. You should also provide other perks and bonuses on top of basic pay to keep your full-time employees engaged.
Related: How to Communicate a Pay Raise
