Salary vs Income
Any individual requires some form of inflow of funds in order to purchase the goods and services that can satisfy their needs. Salary and income share common properties in that they are both forms of monetary inflows of funds that are received by an individual. The two are different from each other because of the source from which these funds are received, even though the use of the funds may be for common purposes. The following article explains the difference between the two and helps the reader identify the source from which both forms of monetary inflows are received.
A salary is a form of inflow received by an individual in exchange for the provision of service to a firm. It is the payment to the employee paid by the employer, and the salary to be paid is usually agreed at the time the individual is employed and will be stated in an employment contract. The salary paid maybe on a periodic basis, such as the end of the week, fortnightly, or the end of the month. The salary received by an individual is the form of inflow that he receives in order to meet his daily necessities, and the purposes for which it is used may include the purchase of food, clothing, mortgage payments, utility bills, leisure spending and so on. The salary that is paid by a firm will be recorded in its income statement as an expense for the use of human resources to carry out corporate activities. Wage rates paid by different countries differ, especially when a minimum wage is to be paid according to government legislation.
An income is any form of inflow of funds that an individual receives, which allows an individual the opportunity to consume the required goods and services and to save for future needs. Income that an individual receives can be in the form of investment income, salaries, payment receipts, profits, dividends, or any other form of funds inflow. Income that is received by an individual is usually taxable, and tax rates that are applied will depend on the level of income obtained from the income source. The income that a household receives will determine their standard of living, as a higher income receiving home will be able to spend more and save more than a home that receives a lower level of income.
What is the difference between salary and income?
The main similarity between salary and income is that they are both forms of funds inflow that an individual receives. However, salary is also a form of income, even though income is not considered to be a salary. Salaries are received by an individual from an employer in exchange for the work that the individual does in the organisation. Income has a broader scope and includes other forms of inflows such as investment income, interest income for bank deposits, dividends income, profits, income from the sale of assets (sale of car, house, etc). Both salary and income are taxable, and tax rates that are allocated to each depend on the tax bracket into which the level of income is included in. For example, if the tax bracket is $1000-$2500 tax rate 5%, an individual who receives a salary or income of $1500 will pay 5% as tax. Salaries are usually more stable (base rate of salary is fixed, even though the increments depend on hours worked or number of units produced) than income which may depend on market movements in prices, fluctuating interest rates and company dividend policies.
What is the difference between ?
• Salary is an inflow received in exchange for a service provided to a firm, whereas an individual does not necessarily have to provide services to receive an income.
• Salary is also a form of income, and both salaries and incomes are taxable depending on the tax bracket the individual belongs.
• Salaries and incomes are usually used by individuals for the same purposes, even though the sources from which income is received is of much wider scope than a salary that is received from an employer.
• Salaries are more stable when compared to income that is volatile depending on the changes in market rates and prices.