Business Payroll - A Case for Paying Your Employees by Hour

US dollars

John Brooks

Release Date

Wednesday, April 3, 2024


Understanding wage and salary payments can help employees and employers make the best decision when negotiating an employment contract. In this article, we discuss the history of wage payments in the US and the benefits of paying wages over salaries. 

Paying employees by the hour in the US: 2021-2023

The average hourly wage in the US was $10.99 as of March 2023. Two years earlier, around 77,000 employees in the health and education sectors were making an hourly wage at or below the statutory minimum. Most were working in the hospitality and leisure industry.

In 2022 and 2023, the highest-paid jobs were in the medical field. Anesthesiology was the highest earning profession with an annual average salary of over $421,000. A reliable payroll service will provide additional clarification of salary and wage payments depending on your industry.

Unfortunately, the monthly inflation rate consistently exceeded wage increases between March 2021 and March 2023. Inflation was 9.1% in June 2022, a four-decade high for the country. As long as wages remain below the inflation rate, they are insufficient to cover the rising costs.

In 2022, the hourly wages needed to cover the expenses of maintaining a two-bedroom apartment were well above the minimum wage in each state. The minimum needed was $14.89 per hour in Arkansas. The average monthly rent in the country was $1,800 in 2021, triple the amount two decades earlier.

The federal minimum wage was $7.25 in 2022, the same as in 2009. When you adjust it for inflation, it comes to 40% less than in 1970. Among the 38 OECD member states, the US ranks seventeenth in terms of national minimum wage. The minimum wage in the country should be $22.88 if it were indexed to productivity.

On an optimistic note, many states have higher minimum wages than the national minimum. As of 2023, Washington DC had $16.50, the highest minimum wage in the country.

Advantages of paying wages

As long as you're paying competitive wages, your staff will be motivated to perform well and encouraged to stay with the company long-term. Fair compensation fosters loyalty and reduces turnover rates, saving the business time and resources in recruiting and training new employees.

Competitive wages make a business more attractive to potential employees. When salaries are aligned with industry standards or higher, the company can draw in top talent, enhancing its overall capabilities and competitiveness. Fair wages contribute to overall employee satisfaction and morale. Feeling valued for their contributions through adequate compensation boosts motivation, leading to a more positive work environment and better employee relations.

Adequate wages can reduce absenteeism and turnover. Employees who feel financially secure are less likely to miss work due to stress-related issues or seek alternative employment opportunities elsewhere. Paying fair wages ensures compliance with labor laws and regulations, avoiding legal penalties and negative publicity. It also helps cultivate a positive reputation for the company as an ethical employer that values its workers.

When employees are fairly compensated, they are more likely to become loyal advocates for the company, both within the workplace and in external interactions. This can positively impact the company's brand image and customer relations. Offering competitive wages can give a business a competitive edge in the market. It can help attract skilled workers who can contribute to innovation and growth, positioning the company ahead of its competitors.

Fair compensation can lead to improved performance as employees are more motivated to achieve their goals and meet company objectives. This can directly impact the bottom line by driving revenue and profitability.

Employees are only bound to work the hours for which they are paid. They don't have to take work home. If the employer chooses to pay hourly, they are not motivated to give workers complicated tasks that will take more time to complete. If the job paying an hourly wage comes with low education and skill requirements, employment is easier to secure. Common non-salaried jobs include retail associates, servers, and gas station attendants. The requirements for candidates are not high, making it easier for people who have been out of the job market to find employment.

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