Comparison
What costs more for a first employee: hourly or salary?
Short answer: if you pay the same taxable wages, employer payroll taxes are the same whether the person is hourly or salaried. On a $41,600 year (the same $20-an-hour, 40-hour example used across this site), federal employer taxes are $3,224.40 plus official state unemployment tax. What changes the bill is overtime and other extra pay, not the word “salary” on the offer. Many salaried employees are still nonexempt and due overtime under the Fair Labor Standards Act.
Key takeaways
- Employer Social Security, Medicare, FUTA, and SUTA attach to taxable wages, not to the pay label (IRS Publication 15). A $41,600 salary and a $20-an-hour, 40-hour wage produce the same $3,182.40 of employer FICA and $42.00 of net FUTA.
- Overtime, when it applies, is generally one and a half times the regular rate for hours over 40 in a workweek (DOL overtime page). Paying a salary does not, by itself, remove that duty.
- Exemption from overtime has official DOL tests (duties, and where relevant a salary-basis and salary-level test). Those tests change, and this page does not invent a current salary threshold. Confirm the current rules on the official DOL overtime pages before you treat a first hire as exempt.
On this page
Price the wage either way Enter an hourly wage, or convert a salary to an hourly rate (salary ÷ 2,080) and add overtime hours if they will occur.
Open the calculatorSame wages, same employer taxes
| Line on $41,600 of taxable wages | Hourly, 40 hours at $20 | Salary of $41,600 |
|---|---|---|
| Taxable wages | $41,600.00 | $41,600.00 |
| Employer FICA | $3,182.40 | $3,182.40 |
| Net FUTA | $42.00 | $42.00 |
| State unemployment tax | The same official rate and wage base in your state; see the state index. | |
If the salaried person and the hourly person actually receive different taxable pay — a bonus, a draw, or unpaid downtime — the taxes will follow the wages, not the label. Workers’ comp is usually also based on payroll, so it does not automatically get cheaper on salary either.
Where salary changes the cost: overtime
An hourly, nonexempt helper who works 45 hours in a week is generally due 5 hours of overtime. At a $20 regular rate, that overtime is $30 an hour, or $150 that week, and employer FICA applies to those overtime wages too. A salaried employee who is nonexempt is also due overtime; the salary covers a set amount of straight-time pay, not unlimited extra hours. The official regular-rate math is in the DOL overtime page and Publication 15 materials — use those rules, not a shortcut from memory.
If the employee is truly exempt under current DOL tests, overtime pay may not be due, but you still pay employer FICA, FUTA, and SUTA on the salary, and you still need a workers’ comp quote where coverage is required. Misclassifying someone as exempt to avoid overtime is a different risk from 1099 misclassification, and this page is not a determination of either.
A practical way to compare offers
Convert the salary to an equivalent hourly rate (annual salary ÷ 2,080 for a 40-hour year) and run both versions in the calculator. Then add the overtime hours you actually expect. If your jobs regularly run long weeks, the hourly (or salaried nonexempt) true cost is the wage plus overtime plus employer taxes on both. Compare that with part-time versus full-time cost if you are also choosing a schedule, and with hiring versus subcontracting if the alternative is sending overflow to another shop.
Run a $20-an-hour baseline Then change the hours to include overtime you already know is coming.
Open the calculatorFrequently asked questions
Is a salaried first employee cheaper than an hourly one?
Not if taxable wages are the same. Employer FICA, FUTA, and state unemployment tax follow wages. Salary can look cheaper only if you were expecting unpaid extra hours; many salaried employees are still owed overtime under the FLSA.
Does paying a salary mean I do not owe overtime?
No. Exemption from overtime depends on official DOL tests, not on calling the pay a salary. Confirm the current duties and salary-level tests on the DOL overtime pages. This page does not invent a threshold or decide whether your hire is exempt.
How do I compare a salary offer with an hourly wage?
Divide the annual salary by 2,080 for a 40-hour year, then add expected overtime and run both in a true-cost calculator. Employer taxes apply to the taxable wages, including overtime.
Figures on this page were checked against the linked official IRS, DOL, USCIS, ACF, and (where used) Indiana ICRB pages in November 2026. Examples are planning estimates, not a tax, legal, or insurance outcome. Confirm with your agencies, accountant, and carrier before you hire or classify a worker.