What Does Wages Earned Mean?

Everyone needs money to live, put food on the table, pay their bills, and, of course, have a bit of fun! But when it comes to the terms “wages,” “wages earned,” “pay,” income,” and “salary,” there are some important differences and nuances.

Let’s start with the people who are earning an income – employees.  The Internal Revenue Service defines an employee as someone who performs work for an employer (who mandates what should be done and how it’s done.) Employees receive compensation in return for their services. The different types of earning include wages, salaries, and overtime pay.

For hourly workers, wages are calculated by multiplying the number of hours worked by the agreed hourly rate that the employee is paid for their services.

How is this hourly rate determined? This typically depends on several factors, including the person’s employment category, for example, supplemental, hourly, premium, overtime, shift differential, or standby.

Some companies pay people salaries, which are fixed sums in return for a specific period of time worked – such as weekly, monthly, or yearly. (More about salaries later.)

Certain employees, such as those working in the service industry, also receive tips from their customers as a gesture of thanks for delivering good service quality. Waiters, drivers, hairstylists, and porters are among this group.

What’s the Difference Between Earnings and Wages?

The words “earnings” and “wages” are often used interchangeably. But in certain circumstances, the differences between them are notable.

The term “earnings” has multiple meanings. It could mean money received from wages but also money received from non-earned income sources such as royalties, passive income, interest, among others. The term “earnings” can be used interchangeably with wages when it means money received for hourly or salary work.

Wages and Salary Defined

Wages are understood as money that an employer pays an employee for the hours they’ve worked (usually each week or bi-weekly, although this can vary.)

On the other hand, a salary is a fixed amount that an employer pays an employee for doing their job, but this isn’t necessarily tied to a specific number of hours worked. Oftentimes, salaried employees work more or fewer hours than what constitutes a “normal” workweek, but their pay doesn’t vary.

The Difference between Gross Wages and Net Wages

Gross wages are the full sum that an employee earns before any taxes (federal, state, and local) and other deductions are made. Non-taxable deductions include health insurance premiums and IRA contributions. Net pay is what you take home after all the deductions have been made.

For salaried employees, their annual salary is their gross wage. Hourly employees can calculate their gross wage amounts by multiplying the number of hours they’ve worked by their hourly wage rate.

Accessing Earned Wages – Why and How

In recent years, the notion of giving employees access to their wages as they’re earned has gained attention and popularity.

Enter Earned Wage Access (EWA).

EWA allows employees to access the money they’ve already earned in several ways: the funds are loaded onto a prepaid or payroll card, deposited to the employee’s existing bank account, or even used to directly pay for services like bill pay, when offered by the EWA provider. The best part is that EWA providers typically allow employees to access their earned wages through a handy mobile app.

EWA is particularly relevant and valuable to lower-income, hourly-paid workers who live from paycheck-to-paycheck. Such individuals frequently find themselves exposed to situations where unplanned but significant expenses for issues like childcare or healthcare can put family finances under pressure. Without access to sufficient funds, they can be forced to borrow from friends, family, or high-cost lenders. Solving these problems and trying to borrow money at short notice is time-consuming and expensive, often forcing employees to be absent from work with little or no notice.

These situations generally kick off a negative cycle of unhappiness for employees and employers alike. Just consider these recent statistics:

Payactiv: Putting EWA to Work

Payactiv offers a compelling model for EWA to help both employers and employees. The service is low-cost to employees and zero-cost to employers. Our unique operating model means that our service doesn’t involve lending money to employees – we simply provide access to their cash as they earn it. There are no credit checks and no adverse impact on credit histories.

We offer a SaaS-based service that employees can access anywhere with a Smartphone. Our service integrates fully with the systems provided by the significant payroll providers so that it aligns fully with your payment process from the get-go.

Learn more about Payactiv’s Service, or book your demo now.