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In Short
- Remuneration is the total pay an employee receives, including salary, wages and other payments such as allowances and reimbursements.
- Salary is a fixed annual amount paid regularly, while wages are based on hours worked.
- Employers must ensure salaries or wages meet at least the minimum wage and understand how overtime is treated.
Tips for Businesses
Ensure employment agreements clearly define whether pay is a salary or hourly wage, and check that all remuneration meets minimum wage requirements. Include how overtime and allowances are handled, and review agreements regularly to avoid underpayment risks and legal disputes.
As an employer, your employment agreements will likely detail your employee's pay. However, terms like 'remuneration,' 'wages,' and 'salary' can mean different things. This can be confusing, especially if the employment agreement does not set out the differences. Hence, this article explains the differences between each payment type.
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What is Remuneration?
Remuneration is an all-encompassing term for payments to an employee. This includes salary and wages, but also other forms of payment, such as:
- reimbursements;
- allowances; and
- superannuation.
Depending on the employee's position, the remuneration in an employment agreement refers to the annual salary or the hourly wage. Where there are multiple components to remuneration, like superannuation and leave arrangements, you will typically deduct these components from the salary component.
What is a Salary?
Businesses often calculate salaries on an annual basis. Additionally, employers typically use salaries where there are a number of set hours that an employee works per week. Typically, you negotiate a salary with an employee at an annual rate. This results in a pre-determined, regular amount you pay accordingly, such as weekly, fortnightly or monthly.
When paying a salary, the pay rate should be at least equal to the minimum wage. Often, salaried remuneration is considerably higher than the minimum wage to account for any overtime employees might work.
For example, if someone is working 35 hours a week with an annual salary of $42,770, then the hourly rate is calculated as follows:
($42,770 salary / 52 weeks ) / 35 hours per week = $23.50 (hourly rate).
In this example, if you request a salaried employee to work overtime, this may become problematic since their hourly rate would drop below the minimum wage (which, as of 1 April 2025, is $23.50). To avoid situations like this, you should ensure that the salaried rate includes potential overtime that you might expect your employee to work.
What are Wages?
Wages differ from salaries since you typically calculate them based on actual time worked. Often, this is on an hourly rate and paid in 15-minute or 30-minute increments.
For wages, employers must pay at least the minimum wage to their employees. Where an employee completes overtime work, the employer must pay for all the time they work at the same rate or the penal rate if applicable to the employee.
Calculating Wages for Part-Time and Casual Employees
When employing part-time or casual staff on wages, it's important to accurately track and calculate their hours worked. Unlike salaried employees who receive consistent payments regardless of minor variations in hours, waged employees must be paid for their actual time worked. This means you need robust timekeeping systems in place, such as timesheets or electronic clock-in systems.
The calculation of annual leave entitlements for waged workers can be more complex than for salaried employees, as you must account for variations in their working patterns.
For instance, if a waged employee's hours fluctuate week to week, their holiday pay should be calculated based on their average weekly earnings over the preceding 12 months (or their ordinary weekly pay, whichever is greater). Failing to properly calculate and pay wages and holiday entitlements can result in significant penalties under New Zealand employment law.
Key Takeaways
The key difference between salary and wages is that wages are calculated based on the hours worked, as opposed to a salary, which is an annual amount. Any overtime an employee completes on waged work is paid at the same hourly rate or more if agreed to in the employment agreement. Nevertheless, there is no legal requirement to pay overtime for limited and occasional additional work completed by a salaried worker unless their hourly rate drops below the minimum wage threshold.
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Frequently Asked Questions
Do I have to pay my salaried workers for overtime?
If you are paying your employees well above the minimum wage, then you will likely not need to pay any overtime for your salaried employees. To be sure, you should always check the employment agreement to see if you have a clause stipulating whether overtime work is included in the employee's annual salary.
What is remuneration?
Remuneration is the total payment that is made to an employee, which includes salary or wages, as well as extras such as superannuation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
