Salary Definition and Uses

Employers can use several different pay structures to compensate workers. Although wages and salaries are terms many people use to mean the same thing, they have unique differences that set them apart. 

A salary is a common payment structure for professionals and refers to a fixed amount of pay you receive over a period of time. Salaries, hourly wages, and commissions are all ways in which you may earn money. 

Continue reading to explore what a salary is and how it is measured, how it compares to different types of compensation, and which factors may play a role in your salary offer. 

Salary definition: What is a salary?

Salaries are fixed sums you receive from an employer, often expressed as an annual figure. For example, you might earn $50,000 annually, roughly $4,167 monthly. Employers could pay this amount weekly, biweekly, or semi-monthly, depending on the position. 

Unlike hourly wages, salary does not fluctuate based on the number of hours worked. This compensation structure is typical for full-time, professional positions and can provide a consistent, predictable income.

Salary and total remuneration: Are they the same?

Another term often used to mean salary is total remuneration, which differs slightly from your salary. Total remuneration refers to your complete compensation package, including your salary or wages, commissions, bonuses, stock options, pension plan contributions, and benefits. 

For example, suppose you make an annual salary of $50,000, and your employer also pays you an annual bonus of $2,000, benefits worth another $5,000, and contributions of $5,000 to your pension plan. In this instance, your total remuneration would be $62,000 or more if your employer provides non-financial compensation like paid time off, professional development opportunities, and health benefits. 

Salary vs. hourly wage vs. commission

Now that you have a clearer idea of salary, how does it compare to wages and commissions? Salaries are only one of the possible payment structures you might encounter when you get a job. Other standard options include hourly wages and commissions. 

Hourly wage

As an hourly worker, your payment relates to the number of hours you work. Hourly employees often earn overtime if they work more than a standard weekly workload. This type of compensation is expected for part-time or temporary positions.

Commission

As a commission-based worker, your payment relates to your performance. For example, your payment may be a percentage of sales revenue or closed deals. Commission-based compensation can reward top performers but may lead to income instability if revenue is highly variable.

Additional payment options

In addition to wages paid through an annual salary, hourly work, or commission, you may earn additional monetary payment through bonuses or stock options. Bonuses are payments based on meeting or exceeding specific goals, such as performance targets or project completion. Bonuses can be a significant source of income for some employees, particularly in industries where individual or team performance is critical to success. 

On the other hand, stock options and equity compensation are shares in the company or organization you work for. The idea is that the values of this ownership will continue over time, and company contributions will go toward the continued success of the company. 

Benefits are another way the company might compensate you. These are typically non-monetary and include health insurance, retirement plans, paid vacation or sick time, or wellness packages. Benefits are highly variable depending on the industry you work for. If you value one type of benefit highly, such as family perks or flexible scheduling, discussing this with your potential employer during the hiring phase is essential.

Pros and cons of salary pay

When deciding which payment type is desirable, consider several factors, including your desire for job stability, schedule flexibility, earning potential, and benefit options. Earning a salary has benefits and potential drawbacks, and which aspects outweigh the others will depend on your personal preferences and lifestyle.

Pros of salary pay

You may find several benefits to earning a salary, including the following:

• Pay stability: Salaried positions provide more stability, while hourly positions can vary depending on your weekly workload. When you sign a contract for a salaried position, you will usually have total clarity of what you can expect to earn during each payment period, regardless of work quantity or quality.

• Benefits: Salaried positions usually have more comprehensive benefits and insurance plans, while hourly workers may have limited benefits. Salaried employees typically discuss benefit packages when starting a new position, including retirement plans, paid vacation and sick time, family perks, and wellness programs.

• Growth potential: Salaried positions may have tighter ties with the organization you are working for. For example, you may have a yearly performance review built into your contract that allows for discussion of company growth and professional advancement opportunities. 

Cons of salary pay

Earning a salary offers increased stability for financial planning. However, you may consider several elements of salary positions as potential challenges or disadvantages. They include the following: 

• Income potential: Salaried positions are typically predictable in their payments and may not allow additional pay if you exceed your standard hours. While this can be beneficial if you work under the standard work hours to complete your tasks, it may be less than optimal for demanding positions that require longer hours.

• Work-life balance: Depending on your role, salaried positions may require more involvement outside of work hours than hourly positions. However, this will depend on your industry and role. When seeking a position, be sure to assess the work culture and expectations of your position.

• Feeling stuck in your role: On the reverse side of growth opportunities, you may feel stuck in your position if you are not finding opportunities for upward mobility. While hourly or contract workers might have more freedom to take on new jobs and find their own route to growth, salaried workers may need help to push against pay ceilings and work within existing structures. Speaking with your employer about your concerns can help ensure you are clear with your expectations and in the proper position.

Factors that influence salary

Several factors are likely to influence your salary, including:

• Job title and responsibilities: Seeking higher-level positions with more responsibility typically leads to a higher salary.

• Education and credentials: Obtaining advanced degrees or specialized certifications may help you increase your earning potential.

• Experience: More experience in a particular field may increase salary.

• Industry: You may earn higher pay by seeking positions in in-demand fields such as health care, tech, and finance. 

• Company size: Working for larger companies with more resources may lead to higher salaries than working for smaller businesses or startups.

• Geographic location: Living in an urban area with a higher cost of living will likely influence your salary to keep up with living costs. 

• Supply and demand for your skills: Cultivating in-demand skills like machine learning or computer programming may increase your earning potential. If you perform highly within your position and showcase your skill set, this may also help boost your salary.

How to negotiate salary

When you seek a new position, negotiating your salary ensures your employer pays you fairly for your effort and expertise. For starters, it helps to come to the negotiating table arms with details about industry and salary standards for your position, taking your education, experience, location, and certifications into consideration. Knowing what the standard pay is for your position can help you get a baseline of what you should be expecting. If you have additional skills or qualifications, explain them clearly to your employer with solid reasoning as to why they will help you perform in your position.

When approaching salary negotiations, keep these tips in mind: 

• Maintain a professional tone and avoid aggressive tactics or manipulation. 

• Arrive prepared with your pitch and an idea of your non-negotiables so you know when to accept an offer or walk away. 

• Prepare for what you think they may ask you, including potentially challenging questions, to help avoid unwanted surprises and maintain your composure during the discussion.

• Remain confident in your abilities and worthwhile positively interacting with your potential (or existing) employer.

Getting started with Coursera

In its simplest form, a salary definition is a set sum you receive from your employer in exchange for your work. Many people refer to their salaries as an annual amount, such as $50,000 per year. Additional forms of compensation, like stock options, bonuses, and medical benefits, can add extra value on top of that annual figure. 

To learn more about payment structures and business fundamentals, consider exploring online courses on Coursera. For example, you can start by taking beginner Specializations such as Business Foundations, offered by the University of Pennsylvania, or Payroll and Tax Fundamentals from ADP to gain a deeper understanding of issues like payroll date calculations, payment methods, and motivating people with reward systems.