By definition, remuneration is the payment or compensation received for work or services. Depending on the standards in the industry, or within each individual company, and an employee’s role and responsibility, there are different remuneration packages given by the employer to their employees.
The two most common types of remuneration are wage and salary. While some people may believe the terms to be interchangeable for all intents and purposes, there are certain distinctions between them. That being said, trying to pinpoint the difference may be difficult as salary falls under the broader definition of wage, so let us begin with the basics.
The Definition of Wage
A wage, also known as an hourly rate, is the payment, whether recurring or not, to an employee for performing non-skilled or semi-skilled tasks.
The amount of wage paid to an employee depends on how many hours worked in a given pay period, which means there is an opportunity for you to earn more if you work more than your contracted hours. Wage-earners may receive remuneration on an hourly, daily, or weekly basis.
It is most common for remuneration to be paid on a weekly or fortnightly basis. The rate per hour pre-determined and agreed upon between the employer and employee before the commencement of the work will be multiplied by the working hours per week.
Some employers may also choose to pay a daily wage, for example when the job is a short-term project that will only require a few days of work to complete. In this case, the rate per hour will be multiplied by the hours worked during the day and paid to the employee at the end of the day.
This structure of remuneration means the pay will reflect the number of hours worked. For example, if you were paid a $20 hourly rate and you worked 15 hours one week and 20 the next, your pay for the first week would be $300 and $400 the next. You are still obligated to fulfill the requirements of the position, but your earnings depend on the number of hours worked.
In many countries, there are statutes, government boards, and laws that impose a floor on wages. This is called the minimum wage. The purpose behind setting a minimum wage is to protect workers against exploitation through unreasonably low pay. It helps to ensure a regular person can earn enough to cover their cost of living without having to overwork themselves.
The minimum wage is usually set per week and then divided by the regular working hours in a week determined through the same set of regulations to get the minimum hourly rate.
If you are new to the industry that you work in, you may find that your rate per hour begins at minimum wage. This can gradually increase as you gain more experience and develop skills specific to the occupation or industry.
For this purpose, you are likely to work under a master tradesperson as an apprentice to undergo a period of hands-on training. Many apprenticeships combine paid employment with a formal qualification—which means you earn a wage while you learn.
The Definition of Salary
For salary workers, the pay scheme is different from wage earners. Salary is a predetermined rate set at the beginning of employment, or when an employee is promoted to a professional position that pays a fixed salary. This could be set as a weekly, monthly, or most commonly an annual salary.
Most employers will set certain salaries to different positions within their companies based on the industry averages, and the rates are bound to a certain lower limit determined by law and legislations as wages are bound to a minimum wage.
Unlike a wage, salaries are not based on an hourly basis, but on daily and even weekly hours worked. In general, companies will set a minimum number of hours to be worked in order to receive a full paycheck.
For example, you may have to work a minimum of 24-30 hours in a week to be eligible for the full forty-hour paycheck. However, this does not necessarily mean that the company has the legal obligations to pay you for hours missed if you do not work the full 40 hours.
The concept of salary is that the role is focused on the task and outcome rather than hours worked. Employees will receive an allocation of work or tasks to complete and will be granted a regular payment regardless of the time taken to complete these tasks.
Factors Affecting Annual Salary
The annual salary awarded to an employee is usually based on several factors. Three of these factors include the type of industry, employee background, and cost of living.
The Type of Industry
Workers with similar roles and responsibilities may have vastly different wages depending on the industry they are in, simply because their job function plays a bigger role in one industry than the other.
An example to help illustrate this concept: an accountant working in a public school is unlikely to earn as much as a partner in an established, multinational accounting firm does.
What they do is essentially the same, the skill set required to carry out the tasks is the same, and they might even have obtained their accounting degree from the same school, but their earning expectancies are different.
Having more industry experience coupled with a degree from a prestigious educational institution tends to result in higher earning potential.
The experience guarantees that the employer does not need to provide training and high-quality results can be delivered within a short timeframe, increasing the productivity of the company.
This is considered as a valuable contribution and employees will be recompensed accordingly.
If you have worked in a similar position before, an employer may seek to review your past performance, especially when you are being considered for a pay increase or promotion.
When applying for a new job, you may often be required to give a past reference to allow the prospective employer a more complete assessment of your abilities.
Cost of Living
Salary rates can also be influenced by the cost of living in an area. For example, placement in a metropolitan city is likely to have a higher salary attached to the position than one in a less populous district.
This is because living expenses such as rent, utilities, and grocery bills in large urban areas will be higher, and therefore a higher income is needed to sustain the standard of living compared to living in more rural locations.
As such, geographic location is one of the key factors that determine how much a person can earn in a given profession.
The Differences between a Wage and a Salary
Now that we have established the definitions of a wage and a salary, we will look into the differences between the two in more depth. As a quick recap: a wage is a payment based on hours put in each day, week, or any other time period—regardless of the progress of the work, whether it has only been half-way completed or fully done.
On the other hand, a salary is a predetermined amount paid to an employee for a given task or set of tasks, regardless of the hours spent completing these tasks.
Besides the aforementioned distinction based on their respective definitions, what are the aspects which set wages and salary apart from one another?
Types of Occupation
In general, wages are paid to semi-skilled or unskilled individuals who provide services in the form of manual labor such as electricians, construction workers, and welders, whereas salaries are paid to skilled persons engaging in administrative or office works.
Hourly wages have traditionally been associated with blue-collar jobs, while a fixed annual salary has been associated with white-collar jobs such as manager, directors, and other highly skilled and licensed professionals.
Key Result Areas
Key Result Areas, commonly abbreviated to KRAs and otherwise known as Key Performance Areas (KPAs), refers to a list of goals that guide an individual to do their job or complete a set of tasks.
Goals and objectives are first set at an organizational level before they cascade down to departmental and individual levels.
Salary workers are often guided by these KRAs to clarify their roles, help focus on results rather than activities, improve time and work management, as well as make value-added decisions. In contrast, wage earners are less likely to work with these types of performance management techniques.
One of the most important things employees look for when presented with a job offer is the various benefits that come with the contract. Different remuneration packages usually carry different benefits, there are some more commonly offered to wage earners, others to salary workers.
For example, employees earning an annual salary are more likely to receive paid and sick leave entitlements, health benefits e.g. medical and disability insurance policy, and retirement benefits.
Additional perks such as maternity or paternity leave, transport, accommodation, and free childcare may provide significant savings to the employee.
Overtime is defined as time worked in addition to one’s normal working hours. If a company asks a wage earner to stay late to complete a task or project outside their contract hours or beyond the forty hours limit per week, then this falls under the category of overtime. As their pay is directly proportional to the hours worked, wage earners may receive bonuses when they work extra hours on the clock past the regular forty.
The hourly rate for overtime work is also generally higher than the regular hourly rate. This may very well add up to hundreds of additional dollars per week.
A salaried employee, on the other hand, may not be compensated for working overtime as there are currently no regulations set in place to uphold an employer to do so. Only performance and end results are highly regarded, therefore the long hours a worker puts into a certain task or project may go unnoticed regardless of the outcomes.
Some might work unusual hours or are on-call by the employer depending on the demand of the business. This situation may lead to increased pressure and contribute to a stressful environment at work.
Not only overtime, but hourly rates for work conducted during the weekends or public holidays also tend to be higher than the regular rate, sometimes even double or triple time.
Employers often make you work the day before and the day after a public holiday in order to receive this holiday rate—an even more beneficial situation for hourly employees.
Working in an industry where overtime is common, such as hospitality placements in restaurants, cafes, and hotels that stay open during weekends and holidays may result in higher earnings for wage earners compared to a salaried employee of the same position.
Companies conduct performance reviews quarterly or half-yearly and offer a range of cash and non-cash incentives to motivate employees to go above and beyond their job descriptions.
As such, salary workers that have performed well throughout the previous period may receive bonuses in acknowledgment of their high-quality performance. This may also be the case upon the completion of a project in which the benchmarks are met and certain goals are exceeded.
Some countries may also have regulations for a special type of bonus called the long service leave.
If an employee has been working for the same employer for an extended period of time, they are entitled to a long leave from work during which they will still receive their ordinary remuneration.
The period of leave can range from 8 to 12 weeks. Typically, this bonus is only awarded to salary workers as an employee needs to work for a minimum of seven years with the same company. Examples of countries that apply the long service leave entitlement are Australia and New Zealand, applicable to both the public and private sectors.
Career Advancement Opportunities
Professional positions such as management roles are often only available to full-time employees, which means salary workers are more likely to be accepted or promoted into these positions compared to hourly employees.
Training and development courses are also first and foremost offered to employees with a full-time contract. As salary workers take on more responsibility than hourly employees, there are more opportunities for them to gain experience that will improve their career and open doors to more advanced placements.
Consistency Vs. Flexibility
Salary workers benefit from knowing their remuneration will be paid consistently at an agreed date or dates within the month for the work they have performed. Earning a salary is both secure and predictable—every check is the same regarding whether a pay period has no holidays or more than one.
This will allow you to plan your spending, as you know the expected amount of income you will receive and when. Given that they still have paid/sick leaves allocation, salary workers are able to take time off without having their pay deducted. For a wage earner, every off day is a day without income.
The consistency also lessens the administrative burden on the payroll department of the company, as they will be able to issue the same pay at the same dates for the same amount. A salary worker is commonly paid through and including the payment date due to the simplicity of the salary calculation.
The case is different when a company works with wage earners, where each paycheck that issued may be different depending on the hours worked within a given time frame.
Due to this, they are usually paid through a date several days prior to the payment date to allow the payroll department to calculate their pay. With wage earners, the payroll staff might also need to issue these checks more often as there is a higher frequency of payment e.g. weekly instead of monthly as with salary workers.
The income of a salaried worker is less susceptible to changes in the industry or economy of the country, as they are fixed. In the event of an economic downturn, a business typically chooses to reduce hours of their hourly employees rather than lay off salaried employees as they would have to give severance benefits in the latter option.
Severance pay for salary workers is usually a good percentage of their salary, while severance pay for hourly employees is a relatively small amount or even non-existent.
In addition, salary workers are also less affected by the decrease in the activity of the business, whereas the company can easily allocate fewer hours to wage earners during weeks that are not busy. This will directly impact the income of wage earners.
Although the flow of remuneration is less consistent than that of salary workers, wage earners have greater flexibility in their work. They need only to work based on their availability and will be rewarded according to the hours logged in the timesheet. From week to week, they can choose to take up more or fewer hours of work.
If an hourly employee is not bound by a legal contract with the company that employs them, they are free to take up other job opportunities that are more beneficial to them at a moment’s notice. Resigning from a salaried position is often not as easy, there is a notice to be submitted to the employer, most commonly a two weeks’ notice, which will allow a replacement with the same skill set to be found and the vacancy filled.
There is also the benefit of the overtime rate. In contrast to a fixed salary, this creates a more stress-free environment as the workers know their time is being valued by the employer and that their additional effort is being noted and recompensed accordingly.
Having an hourly position also allows you room in your schedule to develop other skills or pursue other interests, including education. Many students partake in part-time jobs not only to earn additional income while completing their degree but also to gain experience that will improve their employability when they graduate.
Which One is Better: Earning a Wage or a Salary?
Upon establishing the differences between wage and salary, the natural question that arises is: which one is better, earning an hourly rate or an annual salary? Which one is preferable?
The answer to this question varies from individual to individual. The terms wages and salary both refer to remuneration paid to a worker for work performed; it is often the industry, the type of work, and skills required for the position that determines which remuneration type is more common.
To know which one is better for you, ask yourself a few questions regarding your goals and aspirations, as well as the things you value in a job.
If you are a skilled individual who enjoys structure and have no problem working a 9-5 job for 5 days a week, then a salaried position may be a better option for you. There is a fixed amount of remuneration to be paid, known as annual salary, which is then divided over the course of 12 months.
The professional position is likely to come with more responsibilities but better benefits, which is an important factor to consider if you are providing for your family.
Be prepared to work outside the regular work hours to complete tasks given—keep in mind that exceptional work may be rewarded through increased annual salary or promotion upon performance review.
For those who prefer manual labor occupations and have flexible work hours, becoming a wage earner is an option worthy of consideration.
You have the freedom to decide how much work to put in daily or weekly, and there are opportunities to receive overtime and holiday rates when you work beyond the 40-hour limit or during public holidays. This is suitable for those who are only able to work part-time due to other commitments such as personal development or pursuit of a higher educational degree.