Question: What's the Difference Between Salaried and Hourly Employees?

A salaried employee is paid based on an annual amount, called a salary. An hourly employee is paid based on an hourly amount.

How to Calculate Pay for Salaried and Hourly Employees
A salaried employee is paid $20,000 a year. This salary is divided by the number of pay periods in the year to determine the salary for each pay period. If salaried employees are paid monthly, this employee would receive $1666.67 a month.

An hourly employee is paid $9.62 an hour. To find this employee's pay amount, the hourly rate is multiplied by the number of hours worked in a pay period.

For calculation purposes, a salaried employee is determined to work 2080 hours a year (52 weeks times 40 hours a week). So, in the examples above, the $9.62 an hour paid to the hourly worker is roughly the same as the $20,000 annual salary paid to the salaried worker.

What Determines if an Employee is Salaried or Hourly?
The distinction between salaried and hourly employees is based on the type of work done by these employees and their status as exempt or not exempt from overtime. Professional employees, managers, and supervisors are exempt from overtime requirements; these employees are often paid a salary.

The difference between exempt and nonexempt employees is who gets paid overtime and who doesn't. Not knowing the difference between these categories could cost you a lot of money. Employees who qualify as "exempt" are exempt from overtime regulations (and minimum wage laws), whereas "nonexempt" employees must be paid for every hour of overtime they work. The federal Fair Labor Standards Act (FLSA) and the laws of the 50 states regulate what constitutes "overtime."

Many employers incorrectly believe that all salaried employees are exempt or that by paying an employee a salary, they automatically become exempt. However, just as the labels "employee" and "independent contractor" don't determine a worker's actual status in the eyes of the IRS, the same is true for exempt and nonexempt employees in the eyes of the federal and state labor departments. Exempt and nonexempt status has little to do with job titles and whether an employee is salaried or receives an hourly wage (although in practice, hourly workers are never "exempt"). The legal definition of "exempt" and "nonexempt" has much more to do with an employee's level of responsibility or his or her status as a professional.