Wages

What do we mean when we say “wages”? 

When we say wages, we refer to monetary compensation or income that a person earns from rendering labor or services. To put it simply, wages are what workers and employees are paid by their employer for the work they have done. Wages are generally based on the amount of time that is worked by the individual. 

How are wages computed? 

There is no uniform wage calculation for employees. Each employee will have a rate of pay for a certain period. This rate is agreed upon between the employer and employer before work begins. In the United States, wages are most commonly computed by the hour. It is fairly easy to calculate a person’s wages. You just have to multiply their rate per hour by the total number of hours that they worked. 

If an employee is paid by the hour, the task of tracking their hours worked is their responsibility. Employers usually have an online tracking system in place, where an employee can clock in and clock out daily. Breaks and mealtime are also monitored. An employee’s timesheet is submitted before each payroll for the payroll administrator to verify, compute, and run payroll. From the gross wages, employers can take out necessary withholdings and other applicable deductions from the employees’ paycheck. 

Aside from accurate withholding, employers also take charge of paying all employees what they are due in terms of overtime hours. According to the Fair Labor Standards Act (FLSA), employers must provide non-exempt employees with overtime pay. The rate of overtime pay should not be less than time-and-a-half (1.5x the employee’s normal hourly wage) for non-exempt employees who worked over 40 hours in one week. 

Here are some examples:

• Luke has recently been hired as a full-time employee for a marketing firm. He will work 40 hours per week. His employer agreed to pay him $20 an hour For Luke’s two-week wages, it is calculated by multiplying his hourly rate by 80 hours (2 weeks). 

$20 × 80 = $1,600

• Mary is an hourly employee and is paid $12 per hour. She is a full-time employee and worked 45 hours in total for the week. What is her overtime pay? 

Remember that overtime pay is calculated as time and a half. Meaning, it is 1.5 times the employee’s hourly pay. Overtime hours will be those hours worked beyond 40 hours. In this example, Mary worked 5 overtime hours.

Mary’s overtime pay is:

$12 × 1.5 = $18

$18 × 5 hours = $90

When are wages paid? 

When wages are to be given to employees depends on the agreed arrangement between the employer and employee. A note to employees, please ask about wages, how much you will be paid, how, and when you will be paid. Note that all these details should be clear before verbally agreeing to work or before signing any employment contract or agreement. 

Employers can pay wages at different intervals or frequencies such as: 

• Weekly. This will result in 52 paychecks per year.
• Bi-weekly. This will result in 26 paychecks per year. 
• Semi-monthly. This will result in 24 paychecks per year. 
• Monthly. This will result in 12 paychecks per year. 

The most common frequency is bi-weekly which is paid the week after the workweek has been completed. Doing so allows the payroll team or employer to compute for and prepare the employees’ paychecks. 

What is the difference between wages and salary? 

Wages are generally associated with hourly workers. As we have noted above, wages are hourly rate times the number of hours worked. An employee’s wages are also dependent on whether or not they have rendered overtime work in a specific pay period. Because the number of hours worked and overtime work can change, the wages that employees receive may vary from one pay period to another. 

In contrast, a salary is a predetermined amount that is agreed upon between the employer and employee. An annual amount is paid out in frequencies such as monthly, bi-monthly, bi-weekly, or weekly. A salary is a fixed, regular amount that an employee receives per month. Because it is fixed, an employee receives the same amount in each pay period. Additionally, salaried exempt employees are not entitled to overtime pay. Meaning, they get the same pay no matter how many hours they worked for the pay period.