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May052013

## What is the difference between salary and wages?

Someone who is paid a salary is paid a fixed amount in each pay period, with the total of these fixed payments over a full year summing to the amount of the salary. This person is considered to be an "exempt" employee.

For example, if a person has a \$52,000 salary and he is paid once a week, then the gross amount of each of the 52 paychecks he receives during the year is \$1,000 (\$52,000 / 52 weeks). The person receiving a salary is not paid a smaller amount for working fewer hours, nor is he paid more for working overtime.

Someone who is paid wages receives a pay rate per hour, multiplied by the number of hours worked. This person is considered to be a "non-exempt" employee. For example, a person who is paid a wage of \$20 per hour will receive gross pay of \$800 (\$20/hr x 40 hours) if he works a standard 40 hour week, but will only receive gross pay of \$400 (\$20/hr x 20 hours) if he works 20 hours in a week. A person who receives wages is also entitled to overtime pay of 1.5x his normal rate of pay if he works more than 40 hours per week.

There is also a difference between salary and wages in regard to the speed of payment. If a person is paid a salary, he is paid through and including the pay date, because it is very simple for the payroll staff to calculate his salary, which is a fixed rate of pay. However, if a person is paid wages, he is usually paid through a date that is several days prior to the pay date; this is because his hours may vary, and the payroll staff needs several days to calculate his pay.

If a person is paid wages and there is a gap between the last day worked for which he is paid and his pay date, that gap is paid in his next paycheck. This gap does not exist for a salaried worker, since he is paid through the pay date. Thus, pay is much more likely to be accrued in a company's financial statements for a person being paid wages than for someone being paid a salary.

The expression of a person's pay rate varies depending on whether that person receives a salary or wages. Thus, a person may receive a salary of \$52,000, or wages of \$25.00 per hour. Assuming a standard work year of 2,080 hours per year, the person receiving wages of \$25.00 per hour is actually earning the same gross pay as the person receiving a salary of \$52,000 (2,080 hours x \$25/hour), though the person earning a wage has the opportunity to earn overtime, and so can be considered in a better compensation situation than the person being paid a salary.

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