Salary vs Hourly: Pros and Cons
Here's a scenario most people get wrong: who earns more: a salaried manager at $62,000, or an hourly supervisor at $28/hour? The answer depends entirely on overtime. At 40 hours per week, the salaried worker earns more. But add 8–10 hours of overtime at 1.5x, and the hourly worker pulls $71K. while the salaried manager is stuck at $62K no matter how late they stay.
Kevin and Michelle both work at a Nashville distribution company. Here's the full comparison.
Kevin's Salaried Life
Kevin earns $62,000 regardless of how many hours he works. Some weeks it's 40 hours. During peak season, it's 55. He doesn't get paid extra for the long weeks.
- Predictable income: $2,384 every two weeks, no matter what. Makes budgeting and mortgage applications easy.
- No overtime: Those 55-hour weeks during Q4? Same paycheck. Kevin estimates he works 2,300 hours per year, which puts his effective hourly rate at $26.96. less than Michelle.
- Benefits: Full health insurance, 401(k) with 4% match, 3 weeks PTO.
- Flexibility: If Kevin leaves early on a Friday, nobody docks his pay.
Michelle's Hourly Life
Michelle earns $28/hour. Base pay for 40 hours/week is $58,240/year. But she regularly picks up 8–10 hours of overtime at 1.5x ($42/hour), adding $12,000–$15,000 per year.
- Overtime pay: Every hour over 40 is worth $42. Last year she earned $71,000 total.
- Transparent compensation: Michelle knows exactly what each hour is worth.
- Less flexibility: If Michelle leaves early, she loses pay. Sick days without PTO mean a smaller paycheck.
- Variable income: Slow months with no overtime, she's at $58K pace. Holiday season with heavy overtime, she's at $75K pace.
The Real Comparison
| Kevin (Salary) | Michelle (Hourly) | |
|---|---|---|
| Base pay | $62,000 | $58,240 |
| Actual earnings | $62,000 | $71,000 (with OT) |
| Effective hourly rate | $26.96 (2,300 hrs) | $34.13 (2,080 base hrs) |
| Overtime pay | None | $12,760 |
| PTO value | $7,154 (3 weeks) | $0 (unpaid time off) |
| 401(k) match | $2,480 | $1,164 |
| Schedule control | High | Low |
When Salary Wins
Salary is better when your hours are truly 40/week, you value schedule flexibility, you need predictable income for financial planning, or the benefits package is strong. Kevin's total compensation including PTO and 401(k) match is about $71,600. essentially matching Michelle's overtime earnings, but with less stress and more flexibility.
When Hourly Wins
Hourly is better when overtime is consistently available, you want to be paid for every hour you work, you're in a role where 45–50 hour weeks are normal (salaried workers in those roles are effectively getting a pay cut), or you're building toward a financial goal and willing to put in extra hours to get there.
Frequently Asked Questions
How do I convert salary to hourly?
Divide annual salary by 2,080 (40 hours × 52 weeks). $62,000 ÷ 2,080 = $29.81/hour. But if you work more than 40 hours, divide by your actual annual hours for your true rate.
Do salaried employees get overtime?
It depends. "Exempt" salaried employees (typically earning above $43,888 and in managerial/professional roles) are not entitled to overtime. "Non-exempt" salaried employees are.
Which is better for taxes?
Neither. taxes are based on total income, not how you're paid. The only difference is that overtime income may be withheld at a higher rate initially, but it washes out when you file your return.