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. Some employers choose to compare contracted hours to total pay to understand how compensation aligns with their internal pay approach. For minimum-pay thresholds, refer to current official guidance. 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.
Some organisations estimate an hourly equivalent for internal benchmarking. One common method involves reviewing annual hours and pay. For any compliance thresholds, consult current official guidance:
- 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
Some organisations choose salaried arrangements for full-time roles, depending on internal policy and role requirements. 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. Some employers set out expected working hours in the employment contract, depending on internal policy and current guidance.
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. Organisations often outline how overtime is recorded and compensated in their internal policy and apply that approach consistently.
Cons of waged pay
Waged roles sometimes involve a different benefits structure than full-time salaried roles, depending on organisational policy. If your waged staff are developing an increasingly important role in the functioning of your business, consider offering them a full-time job. In some casual or temporary roles, notice-period expectations can differ from those in full-time contracted roles and are usually determined by the specific agreement and internal policy. This is because they do not have to complete a set notice period.
Waged workers may have rights under UK law, such as those in health-and-safety and minimum-pay rules. For specifics, refer to current official guidance.
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 may not receive the same benefits package as full-time staff, and any statutory rights that apply are outlined in current official guidance. Compensating dedicated staff with a steady income will help you to attract and retain the best staff for your team. Some employers offer additional perks or development opportunities to support engagement, depending on their internal strategy.
Related: How to Communicate a Pay Raise
