If you're a business owner or an HR specialist, one of the most fundamental decisions you must make with every new position or employee is whether that person or job will be paid with an annual salary or an hourly wage.
Which is better? The answer to this question is not simple. Your final decision will be based on number of factors, including the type of job you need performed. For example, if you are operate a restaurant, most of your workers will most likely be hourly, and many will work mainly for the tips generated by their service. In a call center, warehouse or retail setting, employees will almost certainly be hourly and earn their entire wage from the hours they work. In an office setting, employees are more likely to be salaried because their services are less time sensitive and they have a longer commitment to the company.
However, there is some overlap. Below are some of the pros and cons of paying your employees an hourly wage instead of a flat yearly salary.
Hourly employees are more likely to be part-time workers. This gives you, the employer, manager or schedule maker some latitude in how you compose this employee's calendar. However, full-time hourly employees can expect to have their schedules fluctuate as well. This is especially true in the retail space where the workload changes drastically depending on the season in which the schedule is created.
This also has a benefit for employees who need a flexible schedule. For example, students in college will have different available hours depending on their school schedules, which generally changes every term or semester. This is also true for employees who may have additional employment elsewhere. If you hire an employee who is moonlighting at your business, you may not be able to expect 100-percent loyalty to your business. Earning a few extra bucks is simply a second priority to someone's primary employment, so flexibility with these types of employees is mutually beneficial.
Employees who have to use time card software to punch in and out of a shift never really know how much their paychecks will be from week to week. This comes from varying schedules, differentials in their clock-in and clock-out times, the lengths of their lunch and other breaks and whether those periods are paid or not.
Hourly employees also earn differing levels of overtime depending on the state your business is located in and other considerations such as union rules and the like. If a full-time employee works more than 40 hours a week, the employer is generally required to pay them more than their regular wage. Overtime hours may or may not require approval from different authorities, which can be a hassle – especially when an employee is needed in a tight squeeze such as another employee quitting or having an emergency and needing a fast replacement.
The above examples are just a few of the pros and cons of requiring your employees to punch a clock to receive a paycheck. Suffice it to say, it's good if you need a flexible schedule, but with that flexibility comes the price of dealing with an inconsistent workforce and creating schedules to fit each employee's needs.