What’s the difference between salary and hourly pay?

Depending on the type of work you do, there are two main ways you can get paid: with a salary, or an hourly rate. If you’re a salaried employee, you’ll be paid a fixed amount of money from the company you work for. You’ll generally have agreed on your annual salary at the time you sign your employment contract, and it is most often paid out to you in equal installments over 12 months. 

If you’re paid an hourly rate, however, you’ll have a rate applied to each hour you work. In this case, how much money you receive is based on how many hours you work. Keep reading to learn more about salary vs. hourly pros and cons. 

 As a salaried employee, you’ll receive an annual salary—a consistent sum of money delivered to your bank account, typically monthly or semi-monthly. The amount you’re paid and the number of hours you work will be stated in your employment contract. Hourly pay, on the other hand, is when you’re paid for every hour you work—so the more hours you work, the more you’ll get paid. 

Choosing between salary vs. hourly pay isn’t always easy, and will depend on your individual circumstances. Some people like the security of regular payments, so salaried employment works better for them. Others might prefer a more flexible approach, which hourly pay can allow for. We’ve outlined the main differences between hourly and salary pay below and the pros and cons of each.

Banking basics

Banking jargon can be confusing—but it doesn't have to be. Find simple explanations to popular banking terms.

Learn the basics

• The amount of money you’re paid each month is not decided by the number of hours you work—this helps when you’re creating a budget and planning to pay your bills.
• You’ll receive an agreed-upon amount of paid holiday allowance and sick days to use each year, which will be outlined in the contract.
• In addition to your salaried pay, you’ll often have access to other benefits like healthcare and pension schemes—great benefits of salary vs. hourly pay
• Permanent salaried employees are often given more trust and responsibility, which can bring more opportunities to progress in your career.

• As an employee, you deliver work in exchange for your annual salary. You might be required to work more than your contracted hours to do this, but your employer won’t have to pay you extra.
• There might be less flexibility when it comes to taking annual leave, because you have to fit your holidays around other employees and work commitments.
• Working for a company means it might be tricky to work for anybody else. If you’re looking to change jobs or take on extra work, you need to manage this around your current employer and check if you’re allowed to accept other work under your current contract.

• You’re paid for every hour you work and are eligible for overtime pay if you work more than your contracted hours.
• Hourly work could offer you an opportunity to earn more money over a shorter period by working overtime.
• There can be increased flexibility, meaning you can adjust your work/life balance to fit around your interests.

• Budgeting can be more difficult because your income will depend on the availability of your work.
• Holidays and sick days are unpaid.
• There isn’t a set amount of guaranteed hours each week/month and if hours are cut, you’ll earn less. 
• There’s generally no access to any of the additional benefits that you have with salaried work. 

Calculating your annual salary from your hourly wages is usually pretty simple. Start by figuring out how many hours you work on average per week—for example, 30 hours. You then need to multiply this number by your hourly rate—e.g., €28.50—which gives you €855 a week. Then, multiply this by the number of weeks you work a year. If you work 48 weeks, this gives you an annual salary of €41,040. Remember that if you work any overtime, this will add to your overall total.

 If you want to know how to calculate hourly rate from your salary, use the same numbers as above and do the formula in reverse. For example, let’s assume you work 30 hours per week and your annual salary is €41,040. To figure out what your hourly rate is, divide your salaried pay by 1,440 (30 hours x 48 weeks). This would give you a rate of €28.50.

Choosing between being a salaried or hourly employee will depend on how much security you want when it comes to your income. The following points are good to consider when you’re deciding between hourly vs. salary:

• Stability. Do you need the stability of a regular income? It may be that you have set outgoings each month, in which case a salary may be best for you. However, hourly pay often allows for you to work extra hours if needed. This could help with any unexpected payments or if you’re saving for something special.
• Flexibility. If you need to be flexible with how much work you take on and the hours and days you work, hourly paid jobs can often offer more of this. Jobs with a salary will typically need you to request any time off and will only allow a certain amount of time off per year.
• Benefits. Salaried jobs usually provide you with a benefits package including paid annual leave, a pension, or bonuses.

 Whether you have an annual salary or are paid hourly, being able to create a monthly budget is an important part of taking care of your financial health. At N26, we offer a free bank account that can help. Paying your salary into this account gives you access to smart features like Statistics, which automatically categorizes your spending to help you better manage your money. Discover all the features of our bank accounts and sign up today.

The bank you'll love

✓ 100% mobile ✓ No hidden fees ✓ No paperwork ✓ Free virtual Mastercard ✓ Free ATM withdrawals

Get started (new tab)