Wages and salaries constitute the core element of income for the majority of working population. A wage is a monetary compensation an employer pays to an employee in exchange for a job done. The payment may be calculated as a fixed amount for each task completed or at an hourly or daily rate or based on an easily measured quantity of the job the employee has done.
An hourly wage is that which the employer agrees to pay its employees based on numbers of hours worked; this is mostly applicable to unskilled or labor workers. This payment can be done for work done on hourly, weekly or daily basis by an employee.
This simply means whether an employee is paid at the end of the day’s work or at the end of the week or month, his pay is calculated based on the total number of hours worked against an agreed hourly fixed rate with the employer. This has some great advantages and as well some drawbacks as discussed below.
Merits of Hourly Wages
The following are the advantages of hourly wages to both employers and employees.
- Not Bound By Contract
Most hourly wage employees are hired on agreed hourly fixed rate and not with a legally binding contract as a permanent staff of the organization. This benefits both the employees and the employers, the employees can easily switch to any other organization that offers higher rate without any legal burden. On the other hand, the employers can easily terminate their appointment as most are hired without any contract commitment other than agreed hourly rates.
- Cost Saving
As stated earlier, there is no binding contract; as such, hourly wage workers are hired only when needed. Instead of having many employees with contracts and salary commitment whose work hours may not be maximized most times. This saves cost for the organization as the organization does not owe any further obligation (such as gratuity, pension, and other staff incentives) to the employees after disengagement.
- Production quality:
According to information gathered from different sources of production unit by researchers, the production quality will increase if hourly wage workers are engaged. This is because their supervisors ensure that the quality of the products is maintained, as the hourly wage workers are not under any pressure to meet targets like the salaried staff, hence they prioritize quality and standard over quantity.
- Flexibility
Flexibility with hourly wage employees is mutually beneficial to both the employer and the employee when it comes to the matter of scheduling employees work time. For example, students in college who have different available hours depending on their school calendar, which may change every term or semester. This is also beneficial to employees who may have dual employment. For the employer, it gives you some latitude in composing the calendar of an hourly wage employee.
- No Pressure of Accountability
Hourly wage employees don’t have any contribution to the management of the organization. Therefore, if there is any management failure such as slow in growth, decline in sales, decline in profit or loss etc., they cannot be held responsible or accountable.
Salary vs. Hourly — Which is Right for Your Small Business
Disadvantages of Hourly Wages
Hourly wages also have some disadvantages to both employees and employers.
- Loss of Experienced Workers
As stated earlier, employees engaged on hourly wage arrangement can leave anytime, particularly when there is a better offer from another organization. This results to an employer losing experienced workers and results to high employee turnover rate with associated cost of recruitment and training.
- No Job Security
Employees on hourly wage arrangement have no job security as they can be asked to leave whenever there is no job for them to do. This is not so with salary employees, who will still earn his/her salary whether they work all through the month or not.
- Income Fluctuation
Unlike salary employee, whose pay is predetermined based on the organization’s salary grade level, there is no fixed income for hourly wage employees, their pay is based on the number of hours worked within a pay cycle.
- No legal support
As earlier discussed, most hourly wage employees don’t have any written contract between them and their employer. Therefore, if the employer terminates them from the job they will have to leave without any form of legally enforced support.
- No involvement in the decision making of the Organisation
Generally, employees working on an hourly wage basis don’t have any say in the policy formulation of the company. They have almost no power to object or contribute to decisions made by their employers.
- Lack of loyalty and commitment
Most hourly wage employees are likely part-time workers; this makes their loyalty and commitment to the organization to be questionable. There are likely to move to even a competing organization if there is a better offer. As an employer, you should not expect 100% loyalty from such employees.
