Pros and Cons of Hourly Paid Workers vs Salaried Workers

Compare hourly pay vs salaried

Pros and Cons of Hourly Pay vs Salaried

Pros and Cons of Hourly Paid Workers vs Salaried Workers

for both the Business and the Employee!

In my experience, salon owners are divided on the best option. It's common to see hair and beauty professionals paid by the hour and reception or back office staff to have a salary. We dive into the pros and cons of each and hopefully dispel some myths.

Pros and Cons of Hourly Paid Workers vs Salaried Workers

When deciding between hourly-paid and salaried workers, it's important to weigh the pros and cons from both the business and employee perspectives. Each approach has its unique benefits and challenges. The choice can significantly impact the workplace's dynamics, overall job satisfaction and potentially financial stability.

Personally, I see the value of both styles of employment. However, in my own experience of employing people, I prefer salaried. As an employer I just find it easier to pay a standard amount each month – plus any commissions and bonuses where applicable – rather than manage, what can be, large fluctuations in payroll costs. I built Loop HR to manage either pay model and all variations. So it’s not the work, for me, it’s the reassurance of knowing my costs in advance. That said, here’s all the things you may want to consider before your next hire!

The job description forms the foundation to your employee career progression mapping

Hourly paid workers

Pros for the Business

  • Flexibility in Labor Costs: Relative to your contracted hours and working agreement, businesses can scale labour costs according to demand. During slower periods, fewer hours worked means lower payroll expenses.
  • Incentive to Increase Productivity: Hourly workers may be more motivated to work efficiently if they know their pay directly correlates with the hours they put in. Especially if additional hours is an option or incentives such as higher rates for peak times or commissions and bonuses to targets achieved.

Cons for the Business

  • Variable Payroll Costs: Payroll costs can fluctuate significantly based on hours worked, making budgeting and financial planning more challenging.
  • Management Complexity: Tracking hours, managing timesheets, and ensuring accurate payment can be time-consuming and prone to errors, especially if the process isn’t automated.
  • Employees feel entitled to leave anytime: Depending on your contract structure, employees may feel free to come and go more freely than salaried employees. This may leave management short staffed or the feeling of diminished authority.

Pros for the Employee

  • Pay for Time Worked: Hourly workers are compensated specifically for each hour worked, which can lead to higher earnings during busy periods.
  • Flexibility in Scheduling: Hourly employees may enjoy more flexible work hours, allowing them to balance work with personal commitments.

Cons for the Employee

  • Income Uncertainty: Earnings can vary from pay check to pay check, making it difficult to plan finances, especially during slow periods when fewer hours are available.
  • Feeling of Less Job Security: With variable hours, there may be less job security, especially in businesses where hours fluctuate based on demand.
Salaried workers

Salaried Workers

Pros for the Business

  • Predictable Payroll Costs: Salaried employees provide the business with consistent payroll expenses, making budgeting easier and allowing for better financial planning.
  • Increased Commitment and Stability: Salaried workers may feel more committed to the business, leading to greater staff retention and a more stable workforce.
  • Simplified Overtime Management: Salaried employees can work overtime and bank the hours to take back later. This is good for the business as it gets the cover it needs on demand at no additional cost, and the employee takes take back owed time at less busy periods.

Cons for the Business

  • Fixed Costs Regardless of Workload: Salaries are fixed, meaning the business pays the same amount regardless of employee productivity and income, which can be less efficient during slow periods.
  • Potential for Lower Productivity: Without the right incentives and opportunities to earn additional income from commissions and or bonuses, employees may feel less motivated to work.

Pros for the Employee

  • Income Stability: Salaried workers enjoy the security of a fixed income, which can make financial planning easier and reduce stress associated with income fluctuations.
  • Assurance: Salaried employees enjoy a guaranteed salary for holidays, also for time spent training or assisting the business on other tasks. Ensuring they have financial security no matter their role and when on holiday.
  • Potential for Bonuses and Commissions: Many salaried positions include bonuses or commissions on top of base pay, providing opportunities to earn more without depending solely on hours worked.

Cons for the Employee

  • Less Flexibility: Salaried roles often come with the expectation of fixed hours, giving the perception that this makes it harder for employees to adjust their schedules or balance work with personal life. This perception is shifting as flexible working is now more common place and easier to manage.
Career progression planning

Conclusion

Choosing between hourly-paid and salaried workers depends on the specific needs of your salon and the nature of the work. For businesses, hourly workers offer flexibility and cost control, but with the challenge of managing variable costs. Salaried workers provide stability and predictability, but at the risk of inefficiencies during slow periods.

For employees, hourly pay offers compensation for every hour worked, with the trade-off of income variability. Salaried positions provide financial stability and benefits but might come with expectations of regular hours and less flexibility.

Understanding these pros and cons can help you make informed decisions that align with your business culture, goals and the support your employees' needs.

Loop HR will manage both paid by the hour and salaried workers. The system will know, how to manage calculations for holiday allowances and compliance based on the contract and pay types used. To discover more about Loop HR or to ask any questions, book a discover call with me, Ian Egerton, the founder of Loop HR using this link.

Final note: this information does not constitute employment law advice.

Ian Egerton

Founder of Loop HR