Wages vs. Salary: Differences, Advantages, and Disadvantages
Updated March 20, 2023
Salaries and wages are two common compensation systems that employers use. Both structures have their respective advantages and disadvantages for both employers and employees. Understanding wages versus salary can help you make an informed decision when negotiating an employment contract. In this article, we discuss what salaries and wages are and explore the advantages and disadvantages of both models.
Wages vs. salary
A salary is a fixed annual amount an employer agrees to pay an employee for their work. Though salaries are usually annual amounts, employers pay them at specific intervals, subject to their agreement with the employee. Employers can pay salaries weekly, biweekly, or monthly. Most provinces have laws that guide the allocation and payment of salaries.
Wages refer to payment based on an hourly rate and the number of hours an employee works. Wages are popular with low-skill jobs that involve repetitive tasks, part-time roles, and jobs with irregular hours. Usually, employers pay wages weekly or biweekly. Unlike a salary, which is a fixed sum, the wages an employee earns depend on how many hours they work within a specific period.
Advantages of a salary
Here are some advantages salaried employers enjoy:
Access to employee benefits
Salaried employees usually have access to various employment benefits as well as their salary. The benefits vary according to the company, but employees generally have better access to health insurance, pension programs, parental leave and paid time off. These benefits improve the quality of life for salaried employees and make them more committed to their employer.
Greater job security
Salaried employees have long-term employment contracts with their employers, meaning they have more secure employment. Even when there's a decline in activities, salaried employers still retain their positions and salaries. Employers are also less likely to terminate employment contracts during periods of economic crisis. Many employment contracts require employers to have tangible reasons before they can terminate such contracts. This allows for greater job stability.
Salaried employees receive their pay even if they don't have any work to complete for that particular period. They may also enjoy paid time off during sick leave or vacation periods. Stable pay allows for healthier spending habits and makes it easier for employees to set up automatic payments to their savings accounts.
Salaried employees usually earn a higher income than people who earn wages. Employers pay salaried employees extra because they expect them to work extra hours when the situation demands. Salaried employees are also usually professionals who handle high-skill tasks. As they provide more value to the company and typically have more responsibilities, employers pay them better.
Better career trajectory
As salaried employees work in professional positions, they have more opportunities for career advancement. In addition, because of their extensive academic background, salaried employers can work in various fields that offer higher pay than hourly wage positions. Employers are also more likely to favour candidates who had long-term employment with a company and have an extensive academic background.
Disadvantages of a salary
Here are some disadvantages that come with earning a salary:
Lack of flexibility
Salaried employees have long-term contracts, meaning they can't switch jobs easily. In addition, most employment contracts require employees to work for a minimum period before they can resign from the job. Salaried employees also need to inform their employers and go through some processes before they can resign.
You are likely to work longer hours
Salaried employees can receive tasks that require more than their usual working hours to complete. Salaried employees who work in demanding fields often sacrifice their personal time to meet deadlines. This can lead to stress if their employer assigns too great a workload.
Advantages of wages
Here are some of the benefits that employees using the wage system can enjoy:
Greater job flexibility
Employees who earn wages typically don't have long-term employment contracts with the employer. Instead, their work is typically short-term or on an open contract, and they receive pay as they work. This makes it much easier for employees who earn wages to switch jobs.
For example, if an employee notices that another business offers higher hourly rates, they may decide to work for that employer. In the absence of a contrary contract, once an employer pays the hourly wages, that ends the contract. This means people who earn wages don't need to give employers notice before accepting other employment. However, two weeks is still the professional standard and polite way to resign.
Work fewer hours
An employee who earns wages is only contractually bound to work for as many hours as they receive payment. This means they don't have to take unfinished tasks home. As they want to avoid high expenses, employers are also less likely to give them complicated work that can span hours. Fewer work hours can allow employees to spend more time on themselves or their families.
Easier to secure employment
Most jobs that pay hourly wages are jobs that have low skill and education requirements. Common jobs with hourly rates include servers, filling station attendants, security guards, and retail associates. This makes it easier to secure employment, as most people can meet the requirements for such jobs. Also, it's easier for employees who have been absent to return to work and find employment.
Disadvantages of wages
Here are some disadvantages that employees who earn wages are likely to encounter:
No employment benefits
Employers sometimes exclude wage employees from employment benefits. This is because they don't have a long-term employment contract with the company and can leave anytime. While people who earn wages might have access to a few benefits during their time, such as a free lunch, it's unlikely they have access to benefits like health insurance.
Less secure employment
Because of the absence of an employment contract, people who earn wages have low job security. Employers can stop working with them once they've achieved their purpose. Also, in an economic crisis, employees who earn wages are usually primarily affected by downsizing efforts. Employers are also more likely to let people who work on wages go in the event of insubordination or failure to reach agreed targets.
On days when employees who earn wages don't work, they don't receive any income. For instance, if they're absent from work due to illness, they don't receive any pay until they recover and return to work. This can lead to dangerous habits such as working when ill, which puts both the worker and their colleagues at risk. Additionally, when there's a decline in business, workers who earn wages are likely to face difficulties earning money.
Hourly wage rates are usually much lower than salaried employees' salaries because employers know workers who earn wages don't need to continue working after their work hours are over. As most jobs that pay hourly rates are low-skill jobs, this can sometimes contribute to the lower pay. To earn the same as their salaried counterparts, they often need to work more hours each day.
Fewer career advancement opportunities
Employees who earn hourly wage rates sometimes work in roles with a set rate and fewer opportunities to move into other roles. For example, a server can advance to a bartender or restaurant management role, but there aren't typically many opportunities beyond that. As jobs that pay hourly wages typically have fewer education and skill requirements, there's little room for career advancement.
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