Salary vs Hourly: Comparing True Cost
How salaried and hourly roles compare once you load them fully — and why overtime is the deciding factor.
"Should this be a salaried or an hourly role?" is partly an HR question and partly a cost question. The two pay structures can deliver the same take-home pay while producing very different employer costs, mostly because of overtime rules. This guide shows how to compare a salary and an hourly wage on a true, fully-loaded basis so you are comparing like with like.
Whichever structure you use, the Employee Cost Calculator accepts both an hourly rate and an annual salary, so you can model each directly.
Converting between hourly and salary
The basic conversions assume a standard 2,080-hour year:
Hourly rate = annual salary ÷ 2,080
So $25/hour is about $52,000/year, and a $62,400 salary is about $30/hour. But these are only starting points, because the two structures behave differently once you add overtime, benefits, and paid time off.
The overtime difference
The biggest cost difference is overtime. Non-exempt hourly employees must be paid 1.5× for hours over 40 a week, so a busy season can push their cost well above the base figure. Exempt salaried employees generally receive the same pay regardless of hours — but only if the role genuinely meets the legal tests for exemption (duties and a minimum salary threshold). Misclassifying an hourly-type job as exempt "salary" to dodge overtime is a serious and expensive violation.
Comparing true cost, not headline pay
To compare fairly, load both fully. Payroll taxes, workers' comp, and benefits apply to both structures similarly. The variables that move the comparison are overtime (favors salary when hours run long, if the role is legitimately exempt) and predictability (salary makes budgeting easier; hourly ties cost precisely to hours worked).
| Factor | Hourly | Salary (exempt) |
|---|---|---|
| Overtime premium | Yes, 1.5× over 40/wk | Generally none |
| Cost predictability | Varies with hours | Fixed |
| Cost when work is slow | Falls (fewer hours) | Stays fixed |
| Payroll taxes / benefits | Same basis | Same basis |
Which should you offer?
Hourly suits roles with variable workloads where you want cost to track hours and where overtime is likely — many trades and production roles fit here. Salary suits stable, autonomous roles that genuinely meet exemption tests and where predictable budgeting matters. The right answer is the one that matches the actual work and complies with wage-and-hour law — not simply the one that looks cheaper on the offer letter.
Model salary and hourly side by side →