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Salary is an annual amount agreed upon between company and employee and paid to the employee in increments on a schedule for work performed in a specific role. Salaries can be paid monthly, bi-monthly, bi-weekly, or weekly. How is salary different from wage? The essential difference between salary and wage is that a salaried person is paid a fixed amount per pay period and a wage earner is paid by the hour. For a salaried earner, the total of the fixed payments over a full year is the sum of the amount of the salary, and there is no link between the amount paid and the number of hours worked. For a wage earner, there is a link between the amount paid during the full year and the number of hours worked. 

What is a Salary?

As mentioned before, a salary is a regular payment by an employer to an employee for employment that is expressed either monthly or annually for work performed in a specific role. Salary employees are typically paid monthly, but some are paid bi-monthly, bi-weekly, or weekly. Salary employees’ earnings are supplemented with paid vacations and public holidays, healthcare insurance, and other benefits. 

Usually, salaries are determined by comparing what other people in similar positions are paid in the same region and industry. Large employers have levels of pay rates and salary ranges that are linked to hierarchy and time served. Salaries can also be affected by supply and demand. 

Who Pays a Salary?

The employer pays for a salary. The money to pay the employee may come from many different sources, however, depending on what type of company the employee works for. These sources can include the income from the sales of inventory, or the payment of services. Some employees may find that their salary comes from a budget that is fixed for a particular fiscal year. 

When is the First Salary Paid?

Many believe that the first salary ever paid would have been during the Neolithic Revolution, sometime between 10,000 BCE and 6000 BCE. During this time, there would have been an existence of organized employers, such as a government or religious body, that would have been able to facilitate work-for-fire exchanges on a regular enough basis to constitute salaried work. 

When does a Salary Get Paid?

Salary employees are typically paid monthly, but some are paid bi-monthly, bi-weekly, or weekly. Depending on the agreement between the employee and employer, the timing of salary can vary. The most common are either semi-monthly pay or bi-weekly pay. Semi-monthly pay, the employee would be paid on a monthly basis. Whereas bi-weekly, the employee is paid twice a month. 

Is a Salary a Fixed Amount of Money?

Salary is a fixed amount of money or compensation paid to an employee by an employer in return for work performed. Salary is commonly paid at fixed intervals; for example, monthly payments of one-twelfth of the annual salary. 

What Factors Influence Salary Rate?

Market forces such as supply and demand can influence salary rates, but salaries are also determined by tradition and legislation. In the United States, for example, pay levels are influenced mainly by market forces, while in Japan seniority, social structure and tradition play a greater role. 

Even when market forces play a dominant role in determining salary rates, there are still differences in how monetary compensation is arranged for work done based on gender or race. Men tend to earn more than women, and white employees’ average incomes are overall higher than those of other ethnic groups. 

No salary can be below the minimum wage. For example, if the minimum wage is $15 per hour, and the employee works 40 hours per week, his or her salary cannot be less than $31,200 per year ($15 x 40 per week x 52 weeks in a year). 

What are the Tips to Negotiate a Salary in an Interview?

Before you negotiate a salary in an interview, it’s important to do your research. Have a good understanding of what is a fair starting salary for the job and the company you’re considering. It is also good to consider the timing when negotiating your salary. It’s also important to think beyond the paycheck. Ask for things like more paid time off, which might be on the table if a higher salary is not. You should try and have the employer suggest a salary range first before bringing up what you want. 

What is the Difference between Salary and Wage?

Salary Wage
Does not change on a weekly or monthly basis. Can be influenced by how many hours an employee works a week.
Are calculated annually. Calculated the number of hours worked.
No need to track hours worked. Need to keep track of hours worked.
Not paid overtime for holiday work. Paid overtime for holiday work. 

Is a Salary Better than an Hourly Wage?

Depending on your personal circumstances, a salary may be better than an hourly wage; however, salary has its disadvantages and advantages. The main disadvantage of being paid a salary is that in most cases you are not able to earn overtime. So, you often have to work extra hours for no extra pay. 

It is also harder for salaried personnel to separate home from work life than for workers on wages. Hourly employees typically find it easier to switch off completely from work mode as soon as their working day or shift ends. 

An advantage of receiving a salary is being able to plan ahead. You will know exactly how much each paycheck will be for. This makes it easier to decide on a budget for your personal finances. Also, salary employees are more likely to receive benefits, which include paid vacations.

How is Salary Calculated?

It’s important to know how to calculate the salary of your employees. There are a few steps that you can follow to make sure this is done correctly. 

  1. First, calculate gross wages. This includes all types of wages paid to the employee during the pay period–such as base salary, regular hourly wages, overtime wages, commissions, tips, bonuses, paid time off, and business expense reimbursements. 
  2. Second, subtract pretax deductions and nontaxable arrangements from gross wages to arrive at table wages. Payroll deductions and arrangements that are excluded from tax withholding under Internal Revenue Service guidelines or state law should be included in this step. 
  3. Third, withhold taxes from taxable wages. This includes federal income taxes, Social Security taxes, Medicare taxes and applicable state and local taxes. 
  4. Finally, subtract after-tax deductions to arrive at net pay. After-tax deductions include wage garnishments and voluntary benefits that do not qualify as pretax. 

The steps to calculate a salary in a formula would look like this: Gross wages – pretax deductions and nontaxable arrangements – taxes – after-tax deductions = salary. 

How to Pay Employee’s Salary?

There are three ways to pay an employee: 

  • Hourly
  • Salary
  • Commission 

If an employee is paid hourly, you’ll pay them a set rate per hour worked. Hourly wages make the most sense for jobs that are directly related to time in the workplace. 

Salary employees are paid a set amount per year. To determine each paycheck, you’ll divide their annual salary by the number of pay periods in a year. Each pay period will be the same regardless of how much time they worked. 

Commissioned employees are paid based on the number of goods and services they sell. Their pay equals a percentage of the revenue they are directly bringing in. Commission-based paycheck amounts can vary from pay period to pay period. 

What is a Salary Slip?

A salary slip is a formal document that an employer issues to the employee every month to let them know the details of their pay. It includes deductions and the take-home salary. A salary slip contains different elements of the wage, such as the basic salary, house rent allowance, and performance-based incentives. It also includes items deducted from the paycheck. 

How are Salaries Recorded in Accounting?

The account wages and salaries expense or separate accounts such as wage expense or salaries expense are used to record the amounts earned by employees during the accounting period under the accrual basis of accounting. 

What Kind of Expense is Salary?

Salaries expense is the fixed pay earned by employees. The expense represents the cost of non-hourly labor for a business. It is frequently subdivided into a salaries expense account for individual departments.