Compare the Difference Between Wages and Salary with Pros and Cons

Check out the top differences between wages and salary, and find out their advantages and disadvantages.

Wages depend on how much time one spends on work and how much work is completed within that period. Salary is more like a fixed amount. This is the main difference between wages and salary. But there is more to distinguish between them. 

Difference Between Wages and Salary – Comparison Table

See the main parameters that describe the difference between wages and salary.

Parameters	Wages	Salary
Skill level	Semi-skilled	Highly skilled
Pay structure	Not fixed	Fixed
Pay basis	Hourly or daily	Monthly
Evaluation	Bi-annual or annual review	No review
Resignation period	None	30 to 60 days or more
Purpose of work	Getting work done	Increasing company’s revenue

What are Wages?

An employer pays employee wages based on the time spent completing work. You can say that wages are flexible, as they can be earned more by employees when they put in extra hours. Likewise, when they work for a lesser time period they are compensated accordingly. 

Advantages of Wages

• Waged employees enjoy flexibility of work and they can work overtime to earn more wages
• They have lesser responsibility as they work on a part-time basis
• Waged employees are not bound by contracts so they can leave the job immediately without going through any formal process

Disadvantages of Wages

• Waged workers do not get paid leaves; if they are absent, they do not get paid
• They are easily replaceable as there is no contract
• Waged workers also do not get any benefits such as travel or house rent allowances 

Example of Wages

Let’s consider a scenario where an individual named John works as a part-time employee at a retail store. John is paid an hourly wage for the number of hours he works. For instance, if John’s hourly wage is $15, and he works 20 hours in a week, his wage for that week would be calculated as:

Wage = Hourly Rate * Hours Worked
Wage = $15 * 20
Wage = $300

In this example, John’s wage is directly tied to the number of hours he works. His pay is calculated based on the hourly rate multiplied by the hours worked.

What is Salary?

Salary is a fixed income where the employee is bound by a contract. This income is an expense of a company and is recorded in its payroll account managed by the accounting team. 

Related: Accounting interview questions

Salary represents a standard in the job market and it is determined by location and hierarchy. 

Advantages of Salary

• Salaried employees have a consistent pay cycle
• They can be compensated based on the responsibility they take
• They enjoy benefits such as medical insurance, travel and house rent allowance

Disadvantages of Salary

• Salaried individuals do not get overtime pay
• There is no additional ways of earning extra income as work can seep into weekends
• If they are not able to meet the benchmarks of performance, they may not get compensated even when they put extra hours at work

Example of Salary

Let’s consider a scenario where Sarah works as a full-time employee at a software company. Sarah is hired for a salaried position, which means she receives a fixed amount of money on a regular basis, typically monthly or annually, regardless of the number of hours she works. For instance, if Sarah’s annual salary is $60,000, her monthly salary would be calculated as:

Salary = Annual Salary / Number of Pay Periods
Salary = $60,000 / 12
Salary = $5,000

In this example, Sarah’s salary remains the same regardless of the actual number of hours she works in a month. She receives a fixed amount regularly, usually in equal installments, as specified in her employment agreement.

Parting Thoughts

So these are the basic differences between wages and salary. Both have their advantages and disadvantages. As a professional, you can decide which suits your preferences better. 
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Further Reads

• Jobs vs. Business
• Difference between formal and informal organisation