Glossary of Human Resources Management and Employee Benefit Terms
Wages are a form of monetary compensation for employees. They are paid according to the amount of time worked by the employee.
An employee will have a rate for a certain amount of working time, most commonly by the hour. In order to calculate an employee’s wage, multiply their rate by the amount of time they worked for.
Generally, an employee will be in charge of tracking their own hours, noting when they start and finish work each day and accounting for any unpaid breaks. This is usually tracked on a timesheet or with an online time tracking system. Employers will have to calculate any taxes or other paycheck deductions for their employees.
Additionally, employers will have to calculate any overtime hours a wage worker completed. Overtime is calculated as 1.5 times the hourly rate multiplied by the number of overtime hours worked.
Wages can be paid at a variety of frequencies, but the most common are:
Weekly (52 paychecks a year)
Bi-weekly (26 paychecks a year)
Semi-monthly (24 paychecks a year)
Once a month (12 paychecks a year)
Bi-weekly is the most common payment frequency. These wages are often paid in arrears, coming in the week after the work was completed. This leaves time for the employer to calculate and prepare the wages owed.
Let’s say you have an employee who works for $20 an hour. Over the course of a two-week pay period, they worked a total of 80 hours. To calculate the wages they’ve earned, multiply the 20 dollar rate by 80 hours to get a total of $1600.
If this employee worked 10 overtime hours during the pay period, you would multiply their rate by 1.5, making it $30 an hour. $30 multiplied by 10 equals an extra $300 to their paycheck for $1900. You then deduct $400 for taxes and another $55 for their health insurance plan, bringing the final total to $1445.
Wages and salaries are the two most common ways employers compensate their employees. The main differences between wage and salary are how their pay is calculated and distributed and how overtime is calculated.
Wage workers are paid by the hour, and their wages will be calculated according to how many hours were worked during the pay period. Salary workers are paid a fixed amount per pay period, regardless of how many hours they worked.
This is because while wages are paid by rates, salaries are paid according to a yearly sum. For example, say a salaried worker has an annual salary of $50,000. If they were paid semi-monthly and received 24 paychecks in a year, you can divide $50,000 by 24 to calculate their earnings per pay period. In this case, not including deductions, the salaried worker would make around $2,083 on every paycheck.
Salary is much easier to calculate than wages because it’s a fixed rate. For this reason, salaried employees can get paid with zero delay, receiving their earnings in the same week they made them.
Meanwhile, wages are usually paid in arrears by a week because of the time it takes to calculate in addition to any overtime or unpaid days off.
Salary workers are not eligible for overtime compensation. Even if they work long days for the majority of the week, they will maintain the same fixed rate.
Wage workers are eligible for overtime when they work past a 40-hour week, meaning they’ll receive a bonus for that pay period’s paycheck. Some employers may choose to refuse overtime hours for their wage employees.