Difference between Salaries and Wages – Accounting Superpowers

Difference between Salaries and Wages

Difference between Salaries and Wages

"I make $40,000 in Salary a year."

"Taxes are eating into my Wages." 

"What's the minimum Wage these days?"

Salaries, Wages, Cha-Ching

People often talk about Salaries and Wages interchangeably. 

While both Salaries and Wages put money in an Employees pocket and are similar, they are not quite the same. 

Both represent Employees getting paid for the work performed, but the underlying concept behind them is a bit different.  

Let's start by understanding Salaries 

Understanding Salaries

Salaries are paid to Full-Time Employees of a Company as Fixed, regular payments (typically on a monthly basis) for work performed.  

They usually come with other benefits such as retirement contributions and paid vacation.

Technical Stuff

Employee Salaries, Wages and Bonuses are cumulatively referred to a 'Payroll' and represents a major cost to a Business.  

Examples of Salaries

If you get paid a Salary, you usually say things like "I make $40,000 a year."


Someone who is paid wages gets paid a certain amount for each hour worked.

The company computes Wages of an Employee by taking the Pay rate per hour x Number of hours worked.

Additional to their wage, wage-based employees in many sectors also receive 'tips' which are paid directly by clients.

The difference between Salaries and Wages

1.  Salaries provide consistency with Fixed paychecks whereas Wages tend to fluctuate based on the number of hours worked. 

2.  People earning Wages are entitled to Overtime if they work more than 40 hours per week.  

Overtime pay is typically time-and-a-half for each hour after the first 40 hours. For example, if your hourly wage is $12, you would be paid $18 for every hour past 40 hours in a week.

While people who make a Wage may earn overtime, there are a few disadvantages to the wage based payment structure.

Salaries usually pay more for work of the same type.
If a business closes early or decides to cut back on hours, typically, the wage earners are the first to receive a pay cut since it is easier to cut back hours than renegotiate a salary. 

The Fair Labor Standards Act

For readers in the United States, it would be good to familiarize yourself with the Fair Labor Standards Act (also referred to as the FLSA) which is the Labor Law that establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector at the Federal, State, and local governments level.  

It is perhaps one of the most important laws for employers to understand since it covers a wide variety of labor regulations.  You can read more about it by clicking here


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