What is a salary?

There are all kinds of jobs in the world—and different ways to pay the people who do them. For example, some might do freelance work in today’s gig economy, some might make an hourly wage and some may earn a fixed salary.

A salary is one of the most common forms of pay. What is a salary? And how is it different from hourly pay? Learn all that—and more—in this guide.

Key takeaways

  • A salary is a fixed amount of money an employee makes each year for work provided to their employer.
  • In many cases, salaried employees aren’t eligible for overtime pay in the way hourly employees might be. But there are exceptions.
  • Salaried positions can offer access to benefits that hourly positions sometimes don’t—including things like paid vacation time and health insurance coverage.

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What does “salary” mean?

It may help to start with a salary definition: A salary is a fixed amount of money that certain employees—in this case, salaried workers rather than hourly workers—make each year for the work they do on the job.

Paychecks for a salaried employee are relatively consistent, no matter how many hours they work in a given week. But the amount can sometimes fluctuate. For example, some companies might offer stipends for parking that get tacked on to one paycheck each month.

What is annual income?
While salary and annual income may sound like the same thing, they’re often different. That’s because a person’s annual income includes all the sources of income they earn in a year. 

Annual income can include things like the salary, tips and bonuses someone earns at their job. It can also include earnings from things like:

  • Social Security benefits
  • Pension plans
  • Government aid such as welfare and disability assistance
  • Alimony and child support
  • Income made from rental properties

How does salary pay work? 

Workers typically fall into two categories—exempt and nonexempt. Exempt employees generally earn a preset salary, while nonexempt employees most often earn an hourly wage. But there are exceptions where salaried employees might still be considered nonexempt.

Salary versus hourly pay
Here are some specifics around salary and hourly compensation:

  • Exempt employees: Exempt employees typically earn a fixed salary and are exempt from the guidelines created by the Fair Labor Standards Act (FLSA). The FLSA establishes standards for minimum wage, overtime pay and more.
  • Nonexempt employees: The FLSA requires that employers pay their covered nonexempt employees the current federal minimum wage of $7.25 per hour—or their state’s minimum wage if it’s higher. Employers are also required to provide them with overtime pay when they work more than 40 hours in a week.

Calculating your salary as an hourly rate
Even salaried workers may sometimes want to know how their paycheck translates into an hourly rate—for instance, when they’re exploring jobs that pay by the hour. 

To calculate your salary as an hourly rate, you generally divide the amount you make per paycheck by the number of hours you worked in that pay period.

Advantages and disadvantages of a salary

There are some obvious benefits to being a salaried employee—but there can be drawbacks, too. It may help to understand more about each.

Advantages
If you’re a salaried employee, you may have a stronger sense of financial security. Having a consistent amount of money to rely on each month can make it easier for you to create a budget. It can also help you live more comfortably and work toward your financial goals.

Being salaried also means you could have more access to employee benefits like health insurance and paid time off (PTO).

Disadvantages
One potential disadvantage of earning a salary: While the amount you receive with each paycheck is generally fixed, the number of hours you work per week isn’t. 

Depending on the responsibilities of your job, you may end up having to work extra hours to complete your work—but you likely won’t receive additional compensation for doing so. This could have a negative effect on your ability to maintain a healthy work-life balance.

Salary FAQs

Do salaried employees get paid if they don’t work?
If a salaried employee works for a company with a PTO policy, they may be paid for things like vacation days, sick days, holidays and personal time off from the job. Of course, that depends on the specifics of the employer’s policy.

Do salaried employees get overtime?
Employees who earn a salary typically aren’t paid overtime for working more than 40 hours in a week. While some companies may choose to do this, it’s certainly not a given—and probably not something to expect if you’re applying for a new job.

What’s the average salary in the US?
The U.S. Bureau of Labor Statistics tracks information related to the country’s labor market, including average salary by age. The agency reports that the median weekly earnings of full-time workers in the third quarter of 2022 was $1,070—that’s $55,640 in a 52-week work year.

Knowing the median, or midpoint, of earnings may be more helpful than knowing average earnings. That way, salaries that are extremely high or low compared to the rest of the sample won’t skew the results.

Salaries in a nutshell

A salary is a fixed amount of money an employee makes in a year. They receive it through paychecks that are generally consistent in every pay period.

Are you a salaried worker and wondering if your compensation should be higher? Check out Capital One’s guide on how to negotiate your salary.

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