Advantages & Disadvantages of Fixed Salaries

Hourly wages and fixed salaries comprise the two principal ways to compensate an employee. Companies spread annual, fixed salaries over bi-weekly or monthly paychecks throughout the year. There is no "right" way to get paid, and the type of payment you receive depends on company policy and your financial goals. Explore the advantages and disadvantages when considering a fixed salary or hourly wages.

You can budget your money more effectively with a fixed salary, which is a big advantage to that method of payment. Unlike freelance or contract work that pays unsteady wages -- depending on how many projects you pick up -- working on a fixed salary guarantees how much you make during each pay period.

A fixed salary ensures that individual employee output does not need to be constantly monitored, according to the University of California San Diego's Division of Social Sciences (weber.ucsd.edu). This can save money, since mid- and upper-level managers don't need to micromanage daily employee production and decide whether it correlates to wages paid. Those who work for fixed salaries generally have long-term goals they must reach within their companies. Managers assess these goals at various intervals during an employee's career.

A disadvantage to working for a fixed salary is not being eligible for overtime pay. Companies usually exempt salaried employees from being entitled to receiving overtime. "Nonexempt" employees, on the other hand, usually work for hourly wages and are therefore entitled to overtime pay for hours worked above 40 per week. If you get a fixed salary and need to work evenings -- or through weekends or holidays -- don't expect to be compensated for these extra hours, in most cases.

A fixed salary does not allow you to work more hours for extra money, so bringing in additional money can be a challenge. This may put a strain on your wallet, especially if you have increasing bills, higher food costs, or dependents to take care of.