Pros and Cons in Hiring Hourly Wage Employees

November 21, 2021
53 / 100

The hourly wage has already existed as a compensation scheme since 1938. That year, the U.S. Congress passed the Fair Labor Standards Act or FLSA. The law aimed to protect employees from being overworked and under-compensated by their employers.

The FLSA mandated that employers pay their workers “time-and-a-half” for work they rendered past the weekly limit of 40 hours. Hourly wage employees must do their part and keep accurate track of the time that they reported for work. This stipulation, in principle, guaranteed that employees are paid the exact amount that they’re owed for overtime work.

Why Are Some Jobs Pay Fixed Salaries?

Salaried work is different from hourly wages in the sense that employees receive a fixed dollar income regardless of the number of hours that they work. Their arrangement runs contrary, in principle, to the provisions of the Fair Labor Standards Act, but they are legal because of exemptions outlined by the law.

Specifically, the FLSA states that certain job categories are exempted from its provisions that mandate hourly pay. There are a host of job types that are considered exempt, including posts that are professional, executive, administrative, and third-party sales.

While broad, the law does indicate wage thresholds to help determine whether a job post is exempt or non-exempt. As of 2020, the worker’s income must be at $684 per week or an equivalent of $35,568 for the job to be considered exempt from the FLSA. This is a recent revision. Previously, the job must pay $455 per week or $23,660 annually.

The biggest difference between hourly and salaried wages is overtime. Salaried workers don’t receive overtime pay if they work beyond 8 hours a day. This is the trade-off for the fixed and steady paycheck they receive per month. However, they also receive benefits like social security and retirement plans as well as annual bonuses.

Advantages of Hiring Hourly Wage Workers

Hourly wages are very prevalent in the United States, thanks to the FLSA. More than half of the employees in the country are paid by the hour. This has allowed several employers to enjoy many benefits when hiring non-exempt workers for their businesses.

One obvious advantage is being able to save money on wages and benefits. Non-exempt employees are not eligible for salaried benefits. Employers get to save money that would otherwise go to employee contributions for the worker’s retirement plans, health insurance, and Social Security, among others.

Hourly wages may sting a business’ cash flow if the employees are regularly working more than 8 hours. However, if the job is part-time or requires only a specific number of hours, hiring hourly workers can save the business a lot of money that would otherwise go towards salaries. Employers can instead channel that extra money to operational expenses.

Hiring hourly workers also enable employers to be more creative in offering perks to potential employees. The savings realized from the hourly arrangement theoretically give employers a cash flow stable enough to offer awards for outstanding work performance, birthday gifts, and other incentives. They can also offer incentives to entice workers to accept graveyard shifts.

Disadvantages of Hiring Hourly Wage Workers

The lack of job or wage security is an inherent nature of hourly wages that can hurt both the employee and the employer. Turnover is high when you hire hourly workers. Hourly workers, like all types of employees, will seek job and wage security. If they find an opportunity for salaried work, they are likely to grab the opportunity and quit their hourly job.

Contracts for hourly workers are not mandated by law in the United States. This is disadvantageous for both sides of the spectrum. Employees can just quit without prior notice and the employer cannot exercise any legal remedies. Similarly, unscrupulous employers can quickly dismiss an hourly worker without notice as well. More often than not, these dismissals happen without just cause.

Hourly wages do realize savings for the employer, but there is no fixed overhead for wages of hourly workers. It’s difficult for the employer to budget a specific amount for wages, especially if their hourly employees have the freedom to work only the number of hours needed for their tasks. Expenses on wages may be low in one month, then suddenly spike the next. This is true for retail stores that frequently run promotional sales.

Deciding Whether to Hire Hourly or Salaried Workers

The choice of hiring hourly workers or salaried employees hinges on how much the employer is willing to pay the employee, and whether the job position is stipulated by law as exempt or non-exempt. An accountant can determine the wage thresholds by checking the minimum wage requirements for each job position in the business.

One criterion that every entrepreneur should consider when deciding is how much time they plan to require the employee to work. Hourly wage is the ideal choice if the job requires less than 8 hours most of the time. Restaurants that employ part-time waiters, for instance, would prefer to pay by the hour instead of giving these people a fixed salary.

Employers should be ready, however, to pay overtime in situations when the business requires more than 8 hours from the employee. Retail shops facing huge sales on Black Friday, for instance, have to factor in overtime pay for their employees on these busy days. The law requires this if they don’t want to hire seasonal staff to even out the workload.

The non-contractual nature of hourly wages makes it possible for employers to hire employees on a seasonal basis. These workers earn money for services rendered during the time they are needed and are free to leave once the season is over. For some employers, this is an opportunity to spot an exceptional talent that they might want to absorb full-time.

The Bottom Line

The Fair Labor Standards Act created the hourly wage requirement in 1938 to protect employees from abuse through excessive work hours and unfair compensation. The hourly wage since then has given employers an option that lets them save money on employee benefits and wages. Hourly workers also allowed businesses to hire temporary workers that they can let go at the end of the season.

Businesses should invest time to understand the FLSA and its provisions on hourly wages so they can take full advantage of its merits. This will help them spot jobs and opportunities in which these hourly workers can fully benefit the company.  They should also understand the disadvantages of hiring hourly workers so they can make an informed decision.


More Posts:

Product Mistakes You Might Be Making at Your Business

Running a business isn’t easy, and making product-related mistakes can cost your company time and money. From creating products without doing market research to holding excess inventory or failing to file patents, there are numerous pitfalls that you need to be aware...

A Five-Step Guide to Starting a Logistics Company

If you've been considering launching a transportation and logistics company, now is the moment. The transportation and storage sector is very important and profitable. Statistics show that by 2027, the global logistics market would have grown from its 2017 valuation...

How to Reduce Your Tax Burden When Operating a Business

As a business owner, you already have many financial responsibilities. Adding on the burden of taxes can be overwhelming. To reduce any stress, you need to find ways to reduce what you’re spending on taxes.  Start a Retirement Plan  Having a retirement plan in place...

​​How to Prevent Lawsuits From Ruining Your Company

No one wants to deal with the hassle and expense of a lawsuit. Unfortunately, lawsuits can happen to any business, no matter how big or small. The best way to protect your company is to take preventative measures to make sure that you are doing everything possible to...

10 Strategies an Ecommerce Business Needs to Follow to Increase their Customer Base

Online retailers need to drive traffic to their websites to boost sales. It is important to choose the right marketing strategies to drive traffic since not every strategy will work for every business. This article provides an overview of efficient marketing...

Why Digital Menu Boards Are A Game Changer For Restaurants

There are numerous benefits of using digital menu boards in restaurants. The best drive-thru menu boards can be controlled remotely to make updating fast and easy. Convenience is the main focus of drive-thrus. Customers don't need to leave their automobiles to place...

How to Avoid Manufacturing Woes at Your Business

If your business relies on manufactured goods, then you know that there are a lot of potential problems that can occur during the production process. From defective products to missed deadlines, manufacturing woes can cause big headaches for your business.  Here are...

5 Strategies to Build Team Spirit in Your Business

The manner in which we connect and communicate with our staff members can have a considerable influence on their levels of motivation as well as their output. In this article, we explore a variety of psychological and motivational approaches that can inspire teams and...

What Your Business Needs to Make Remote Work Function Well

In the post-pandemic world, the necessity of remote work has become clear to more and more companies. It carries with it unique advantages as well as unique challenges for both employer and employee. Here’s what you need for it to work smoothly. Regular Communication...

How to Attract Executives to Your Company

If you’re trying to quickly expand your company, one of the most difficult steps will be finding experienced and talented executives. You’re going to need to work fast if you want to find the right people. Here are some of your primary tools for attracting the best...

All Categories

Business Operations

Entrepreneur Interviews

Marketing, Networking, & Social Media

Self Care & Personal Development

Working Moms

Business Software and Technology

Entrepreneurship & Small Business

Organizing Tips


Career Building

Family Businesses


Starting Your Own Business

Work-Life Balance


Hiring Help

Management & Leadership

Time Management & Priorities

Women in Leadership

Recent Posts

What to Do When Your Vehicle Lease Comes to an End

What to Do When Your Vehicle Lease Comes to an End

As your vehicle lease reaches the end of its term, you are presented with three options: return the car to the dealership, sell the lease or buy it outright. Each choice obviously has benefits and drawbacks that must be weighed before making a decision. In this...

The Power of Women-Owned Small Businesses

The Power of Women-Owned Small Businesses

     Women-owned small businesses are on the rise, and their impact is undeniable. In fact, in 2019 alone, women-owned nearly 12 million businesses that employed nearly 9 million people and generated over $1.9 trillion in revenue. From retail to technology to finance,...

Nyago Michael Emmanuel

Nyago Michael Emmanuel

We invite many people who can invest in our Akiba Ya umoja community benefit savings and investment group of Uganda to enable us expand our operations in Uganda

Soe Tun: The Copy Doctor

Soe Tun: The Copy Doctor

Autistic kid finds out that he’s unemployable and doesn’t enjoy most social settings. Decides to be a pro copywriter as a result.

Annie Anderson – Business Strategist & WordPress Creator

Annie Anderson – Business Strategist & WordPress Creator

Annie Anderson is the owner and digital creator at Midnight Rebel Digital Co. With over 25 years experience in design and development and more than 15 years experience with WordPress, Annie is a great person to have in your corner when it comes to websites, tech, and systems.

How Startups Can Ensure Health and Safety at the Workplace

How Startups Can Ensure Health and Safety at the Workplace

Everyone, including the owners, management, and staff, is responsible for ensuring workplace safety. All parties must take the proper steps so that no one is harmed while working. If you are looking for ways to keep your workplace safe, here are ten tips to help you out.