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What is the difference between wages and salary?

Author:
Harold Averkamp, CPA, MBA

You should be aware that some people use the terms wages and salary interchangeably. I and many others make the following distinction…

Definition of Wages

Wages are usually associated with employee compensation that is based on the number of hours worked multiplied by an hourly rate of pay. Generally, the employees earning hourly wages will be paid in the week that follows the hours worked.

Example of Wages

For example, a warehouse employee works 40 hours during the work week. If the employee’s hourly rate of pay is $15, on the 5th day following the work week, the employee will receive a paycheck showing gross wages of $600 (40 x $15). If the employee had worked only 30 hours during the work week, the paycheck will show gross wages of $450 (30 x $15).

Definition of Salary

Salary is associated with employee compensation quoted on an annual basis, such as $50,000 per year. Many employees working in a company’s general office will be paid a salary. Often the salaries are paid semi-monthly. That is, one pay date will be the 15th day of the month for working from the 1st to the 15th, and the other pay date will be the last day of the month for working from the 16th to the last day of the month.

Example of Salary

To illustrate, let’s assume that the manager of a company might earn a salary of $120,000 per year. If the manager is paid semi-monthly each paycheck will show a gross salary of $5,000 for half a month’s work.

Overtime Pay

U.S. and state law protects employees from having to work more than 40 hours per week when their wages or salary is below a certain level. In other words, a salaried employee with a relatively low annual salary must be given overtime compensation if the person’s hours worked are greater than 40 hours per week. You should be aware of the federal and state laws for your employees’ overtime compensation.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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