Employment

The differences between Pay and Wages explained

Natalia HongNatalia Hong
Last updated on:
July 28, 2022
Published on:
July 28, 2022

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The form of remuneration that an employer chooses will affect how an employee’s pay or wages are determined in the UK. In this article we will discuss the differences between pay and wages, as well as the advantages and disadvantages of them both.

What is the difference between pay and wages?

The terms ‘pay and ‘wages’ are often used synonymously. However, they have very different meanings. For example, what is ‘pay’? It is an agreed remuneration between an employer and employee to be paid at an agreed date or time, that could be a monthly or weekly instalment deposited directly into an employee’s bank account. Typically, this is confirmed in writing in the employment contract. The contract of employment also outlines the number of hours per week that an employee will need to work over the course of a year to earn their annual pay.

‘Wages’ on the other hand is a type of compensation for either hourly or daily for work completed throughout the working day.

The major distinction between ‘pay’ and an hourly ‘wage’ is that ‘pay’ is a fixed sum of money that both the employer and the employee have agreed upon in an employment contract. On the other hand, ‘wages’ can change based on performance and the number of hours worked.

What are the advantages of pay?

Stability

With the exception of bonuses, employees are promised a specific amount each week or month. This makes financial planning simpler because they will be able to calculate their monthly income and expenses in advance.

Extra benefits

Employees with a monthly pay have the entitlement to a certain number of paid days of holiday each year. The number of paid days off would have been agreed beforehand between the employer and employee. Moreover, flexible work schedules may also be agreed upon in the employment contract.

Higher pay

Compared to their counterparts on an hourly wage, employees on a salaried pay typically have additional duties. As such, to meet deadlines employees on salaried pay may have to work longer than the usual 40-hour work week, and this is usually reflected in their compensation for their duties.

What are the disadvantages of pay?

Overtime

Working overtime is one of the biggest drawbacks of employees on a monthly pay. Although employees on a salaried pay are permitted to work overtime, it can be difficult to track. An employee paid by the hour would put in extra time and only be paid for the hours they worked.

Compensation reductions

When times are tight financially, businesses can reduce outgoings by reducing pay. Waged workers are more likely to have their hours reduced than their hourly rate reduced. Employees on a salaried pay could therefore risk putting in more hours of work without getting paid more.

Public holiday pay

Employees who are on a ‘wage’ are frequently paid more to work on public holidays like Christmas or Easter, similar to overtime pay. Employees on a salaried pay however, may be required to work on holidays without getting paid extra, depending on the needs of the company and the terms of their employment contract.

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What are the advantages of a wage?

Paid by the hour

Employees who get paid a wage by the hour receive the benefit of compensation for the hours they actually work. In other words, if an employee puts in eight hours a day of labour, they will be paid for those eight hours. An employee will be compensated for whatever overtime they are required to work as well.

No restrictions

Employees on a ‘wage’ are not bound by the same restrictions as an employment contract which means they can usually work for multiple employers at the same time and give a reduced noticed period to terminate their contract.

Paid on the spot

Employees on a wage are often paid daily or once a week because their pay is directly correlated to the number of hours they have worked. Employees on a salaried pay on the other hand usually have to wait a full month before receiving their compensation.

The disadvantages of a wage

Working hours

Employees on a ‘wage’ get compensated for the hours which they work which means that they can be paid less if they work less. There might also be less certainty around their working hours which means they may work less and earn less than a salaried employee.

Reduced hours

Employee hours are typically the first to be reduced when a business is going through financial difficulties, which usually results in less income for employees on a wage. 

Statutory rights and benefits

There is no safety net for employees on a ‘wage’. As such, should the employee fall sick and is unable to work, they would not be entitled to any sick pay or medical leave. They would also not benefit from any health insurance coverage or a pension payment plan. 

As an employer, whether you are hiring employees on a salary or hourly wage, it’s important to have robust contracts in place to ensure that the rights and obligations of both parties are clearly understood. Using a platform like Legislate makes it easy to create lawyer-approved contracts and track the data they contain. Moreover, employees can access their agreements in one place during and after their employment which offers more transparency and improves the overall employee experience. To get started, sign up and choose a plan!

About Legislate

Legislate is a contracting platform where business owners can create contracts to help grow and develop their business. Legislate's employment contracts and offer letters are key in protecting your IP and Legislate's NDAs are crucial to ensure you can have conversations and partnerships to help develop your business and brand. Book a demo or sign up today to put the confidence back into contracting.

 

The opinions on this page are for general information purposes only and do not constitute legal or financial advice on which you should rely.

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