How Does a Salary Work?

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Companies pay employees in several different ways. Employees who are compensated for their time -- often low-skilled laborers or retail clerks -- receive an hourly wage. Employees who are compensated for their work product draw a salary, which is a fixed periodic sum that is not tied to actual working hours.


A salary is any form of payment by an employer for the employee's actual work product, instead of simple hours on the clock. Accountants, managers and senior analysts are usually paid on salary; they get the same pay check if they work 40 or 60 hours in a week, but their performance is measured against the quality of their work, not against the time it took to complete it.

However, some employers, particularly small companies, may pay "hourly" employees on a salary basis simply to ease the burden of managing a time clock.

Fair Labor Standards Act

The Fair Labor Standards Act outlines the broad federal regulations about which types of jobs should be compensated for time -- including overtime and minimum wage -- and which should be compensated for work product. By default, employees are paid for time, but a class of employees who are typically paid by salary are considered "exempt" from FLSA's overtime and wage-reporting standards. The Department of Labor's Wage and Hour Division manages the exemption process.

Exempt Employees

Under FLSA, certain jobs are exempt for overtime pay, minimum wages, child labor or some combination of the three. Common exempt positions include farm workers, seasonal recreation workers, managers, outside sales agents and some commissioned sales agents. Positions like airline employees are exempt from overtime but not exempt from minimum wages, but workers with disabilities are exempt from the minimum wage but not from overtime. The U.S. Department of Labor maintains detailed lists of the types of jobs that have different exemptions.

Exemption and Salary

A person can draw a salary and not be exempt under FLSA; for example, a secretary could earn a base salary. However, nonexempt workers must be paid overtime and a minimum wage, so these positions are often employed as hourly workers who punch a time clock. Likewise, a person can be exempt and still have to record time, if the employer requests it.

In general, though, exempt employees typically draw a salary, while nonexempt employees draw an hourly wage.