To run an organization in a streamlined manner, timely and accurate payroll generation is a necessity. Along with full-time employees, an organization also employs freelancers and part-time employees as well.
Therefore, a company must be cautious while computing salaries and wages for individual employees. Very often, one might come across companies using these terms interchangeably, despite them being distinctly different.
If you are unaware of how wages vs salaries are different, this blog is for you. Read till the end to know differences between wage and salary, their types, pros, and cons.
What are Wages and Salaries?
To know which is better between wage vs salary, you need to have a clear idea of what wages and salaries are.
Wage is a final compensation or remuneration that a person receives at the end of period. Wage is calculated based on time the person spends on a particular task. This means, unlike salaries, you will receive wages on an hourly, daily, or weekly basis.
Wages can vary from person to person depending on factors like industry, education qualification, experience, location, and economic conditions like inflation and recession. Along with these, the time taken to complete the task also helps determine the wage of that person.
On the other hand, salaries are monthly remuneration that employees receive for their service under an employer. Unlike wages, salaries are not calculated on a daily, hourly, and weekly basis. The salary of the employee does not vary depending on a particular task or the time taken to complete an assignment. This is a fixed compensation and employers are bound to pay the predetermined amount on a set time every month.
What is the Difference Between Wage vs Salary?
Now that you know what wages and salaries are individually, let’s take you through a comparative study of wages vs salary.
The table below will take you through the differences between wages and salaries in a clear manner.
| Wages | Salaries |
|---|---|
| Wages are calculated and paid on hourly, daily, weekly, and bi-weekly basis. | It is calculated annually and paid every month to employees. |
| There is no specific contract on bond determining wages between employee and employer. | Salaries are pre-determined as contracts after an elaborate negotiation during the hiring process.r |
| Provides overtime pay to deserving employees. | No extra pay for overtime.r |
| Can vary between employees depending on their working hours. e | Usually fixed for employees regardless of their working hours.r |
| Employees get paid for actual hours they have worked. | Employees are expected to work for a fixed number of hours daily. |
| The income with wages can fluctuate on a daily or weekly basis as per work availability and time. | Companies are bound to provide a fixed income to employees regardless of work availability. |
| Might or might not include any kind of taxation. | Might or might not include any kind of taxation. |
| Leaves are generally unpaid or limited. | Employees receive numerous paid leaves. |
| For gigs, freelance or part-time work, employers do not emphasize qualifications much. | Educational qualifications and experiences are top necessities when recruiting salaried employees. |
| Can depend on quantity of work | Does not rely on quantity of work but work quantity can involve performance bonuses. |
| Can be less secure and exposed to exploitation depending on employers' whim | Comparatively more secure from any form of exploitation as they are contract-based. |
For detailed knowledge on how wage vs salary differ from one another, and which is better, keep scrolling!
What are the Types of Wages in India?
Now that you know wages and salary meaning, let’s take you through the common types of wages in India for a deeper understanding of wages.
- Living Wage
As the name suggests, living wages only suffice to cover the bare minimum requirements of an employee and their family. On this note, while providing minimum wage, companies must ensure that a person’s living wage should also be able to a certain degree of comfort along with necessities.
- Minimum Wage
This type of wage is the lowest wage that a company can provide to a person for their service. Minimum wage allows employees to meet their necessities. However, employers must ensure with minimum wage an employee can afford few comfort needs along with basic requirements.
- Fair Wage
Fair wage is the mean of the living and minimum wage of an individual. Employers compute the fair wage of an employee depending on their working capacity and workload. This implies the minimum fair wage is the company’s capacity to pay minimum wage. Whereas, the upper limit of fair wage reflects the industry’s capacity to pay the particular employee.
How are Wages Calculated?
Most often, employers calculate wages depending on the working hours of a particular individual. So the formula to calculate wages of the employee is as follows.
Wage= Rate per hour * Hours worked
For instance, Mr. X is a part-time salesperson in an electronic showroom. Therefore, his wage is calculated on an hourly basis. If his rate for an hour is ₹40 and he works for 60 hours a week, let’s see what his receivable wage will be at the end of one week.
Wage= ₹(40*60)= ₹240
This means, Mr X will receive Rs. 240 after completing 60 hours of work every week.
What are the Pros and Cons of Wages?
Let’s now take you through the pros and cons of wages. This will help provide a clear idea of which is better between remuneration vs salaries.
Pros
- There is no contract binding employers and employees. This empowers employees with complete freedom to quit in case of any inconveniences.
- Very often employees rely on wage work as freelancers or part-time gigs. Thus, they have comparatively fewer responsibilities than full-time employees working on salaries.
- Hourly wages paint the actual picture of exactly how many hours a person has worked. This ensures employees are paid as per their time in service. So employees who have worked as overtimers are paid more.
Cons
- The absence of contract opens room for employers to exploit the waged employee and terminate their service at any time without former notice.
- Waged employees do not receive any paid leave. So they are more prone to pay cuts than salaried employees.
What are the Types of Salaries?
Like wages, salaries are also classified into different types. Knowing these types will help you choose which is better between wages vs salaries.
The points below will take you through the types of salaries common in India.
- CTC
Cost to Company or CTC is the total remuneration that a company pays to employees annually for their service. CTC consists of components like basic pay, dearness allowance, and HRA among others. Some components of CTC are also exempt from tax deductions. These are pre-determined during recruitment process of an employee.
- Gross Salary
Gross salary is also another important type of salary that an employee receives every month without any kind of tax deduction.
- Net Salary
Also known as in-hand salary, net salary is the amount that an employee will receive every month after the required tax deduction.
How are Salaries Calculated?
You can calculate the basic salary of an employee using the formula below.
Basic Salary= Gross Salary-(DA+HRA+Conveyance+Other Allowance)
To understand how the calculation works, let’s consider a simple example.
Megha works in an IT company, wherein her monthly payroll looks something like this,
Gross Salary= ₹80,000
DA= ₹4000
Conveyance Allowance= ₹2000
Medical Allowance= ₹2000
Other Allowance= ₹5000
Basic Salary= Gross Salary- (DA+HRA+Conveyance+Other Allowance)
As per the above formula,
Basic Salary= ₹80000-(4000+2000+2000+5000)= ₹67000
Therefore the basic salary, Megha receives at the end of every month is ₹67000
As you can see, calculation of salary and wages for every employee in an organization is a time-consuming process. The traditional methods of bookkeeping of individual payables can lead to inaccuracies, increasing chances of error and reducing transparency. To improve instances of transparency, and accuracy while saving time during payroll generation consider switching to AI-backed payroll management systems.
What are the Pros and Cons of Salaries?
For a better understanding of differences between Wage vs Salary, let’s take you through the pros and cons of salary.
Pros
- Provides stability and assurance of consistent payments to employees for their service.
- Employees do not have to fear pay cuts during leaves as salaried employees receive paid leave.
- Employees also enjoy benefits like house rest allowance, incentives and travel allowances. Some of them also ensure tax exemption benefits.
Cons
- Very often salaried employees do not get recognized for overtime.
- Regardless of workload pressure, salaried employees receive a fixed pay.
Bottom Line
With the aforementioned points, you can get a clear idea of factors that differentiate between wages vs salary. The business model of your organization plays a strong role in determining which is better between the two for employees. If your company tends to rely more on freelancers and part-timers, you can go for a wage system. Nevertheless, if you are employing individuals as full-time employees, a salary system can be your go-to option.
To efficiently handle payroll generation processes by segregating and accurately calculating wages and salaries for every employee, say Hello to Emossy Payroll software. For further details on how Emossy Payroll works and its features, explore our website.
Frequently Asked Questions
What are some of the salary-based jobs examples?
To know the difference between wage vs salary with job roles, some examples of salaried jobs are management analysts, dentists, engineers, accountants, and HR Managers.
What are a few wage-based jobs?
Examples of few wage-based jobs are child care providers, salespersons, and domestic help.
What parameters do I need to know to calculate my take-home salary?
To calculate your take-home salary, you must consider parameters like annual gross pay, DA, HRA, bonus, professional tax, and PF contribution.
