A salary is a regular payment made to an employee in exchange for their services, often agreed upon at the start of employment. Exempt employees may work longer hours without overtime pay, but may receive incentives such as bonuses or compensation time. Salaries can be negotiated and may include benefits such as sick and vacation days, retirement, and health-related benefits. Stock options may also be offered as an incentive for productivity and loyalty.
A salary is part of a compensation package that employers provide to employees in exchange for specific services. Typically understood as coverage for a year of services, it is the money an employee earns at regular intervals – often monthly, semi-annual or even weekly – throughout the year. Payment terms are usually agreed between an employer and employee at the start of an employment relationship, although the details may change over time.
While an individual must agree to be an employee, it is the employer who decides whether to offer this position to an employee. Once hired, these employees may be required to work a minimum number of hours each week, but compensation is usually based on more than time spent in the office. To maintain their positions, employees typically must continue to meet certain performance standards.
Over time
Sometimes paid employees can be expected to contribute more than usual. In the United States, a law called the Fair Labor Standards Act guarantees that all employees are entitled to overtime payments, but it does not apply to those who are considered “exempt”. Exempt employees include those in professional, administrative and executive positions, as well as some sales and computer workers. They must also earn at least a certain amount each week, perform certain types of jobs, and receive the same salary even if they don’t work the normal number of hours.
For exempt employees, this could mean that they sometimes work weekends or late into the evening at no extra cost. Some employers might offer incentives, such as time off or year-end financial bonuses, to keep employees who work particularly long hours motivated. Compensation hours, sometimes called “comp time,” might also be offered, so an employee arriving on a Saturday to meet a deadline, for example, might take a day off during the following week.
Distinguishing between exempt and non-exempt employees isn’t always easy, and some employers try to classify as many exempt workers as possible to save money. An employee who is regularly asked to work overtime and thinks they may meet the overtime criteria may wish to speak to their company’s human resources department or an employment lawyer or other employment law professional.
Salary increases
Employers with the resources to do so may decide to periodically raise a worker’s pay. Lifts and promotions are usually issued following an annual performance review between a manager and an employee, although they may occur more or less frequently. A talented employee who is performing particularly well, for example, might be offered a raise to encourage her to continue doing good work and to keep her happy with her work.
While some positions have set salaries, it is often possible for an individual to negotiate. Some employment professionals suggest that when a candidate is offered a job, he or she should always try to negotiate for more money, in part as a way to show the new employer that the individual has researched the position and he knows his own worth. Raises can also often be negotiated, especially if a position has been changed and new responsibilities have been added.
While relatively rare, salaries for individuals, departments or the entire company can, in some cases, be reduced if a regional economy is slowing dramatically or an employer is experiencing severe financial hardship. It might be better for employees to take a — hopefully temporary — pay cut to get the company through the tough times than for some or all of the workers to lose their jobs.
Salary vs. wages
While “salary” may be the accepted term for any compensation employees earn, it’s not always an accurate reflection of someone’s earnings. The income that is earned in the first place over the number of hours worked is considered a wage. An employee is paid specifically for the number of hours they work and is almost always entitled to overtime pay for working more than the required number of hours each week.
Salaried employees, however, are often afforded certain benefits that may or may not be given to dependent employment. For example, they can usually rack up sick and vacation days that allow them to miss some work and still get paid. Not all hourly positions offer these types of benefits. Also, having a regular, regular paycheck often makes it easier to create a budget. With wages, the amount of income can vary from one pay period to another.
It is not uncommon for employees who join a company as an hourly employee to be transferred into paid positions. This could happen after a predetermined probation period of several months, or it could be a way for an employer to keep strong talent. Whereas wages require more of a financial investment in employees than wages, the former tends to provide more prestige and job security.
Larger compensation
Often, a salary is part of a larger benefit package, extending to include both retirement and health-related benefits. In fact, some employers will use benefits as an incentive for talented workers when they can’t offer them higher base pay. Another tactic some employers use is to offer employees stock options, which represent the right to buy stock shares in a company at a discount. This has the added incentive of encouraging both productivity and loyalty, since an employee who is financially invested in the company likely wants to see it succeed.
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