As an employer, one of the many decisions you have to make is how to pay your employees via salaries or hourly wages. This decision should be made while considering important factors, such as the company’s structure, each employee's specific job description, and industry or labor laws.
The following article expands on why salaried employees can be a valid choice, the differences between them and hourly employees, and many more details to help you understand this subject.
The Fair Labour Standards Act (FLSA) is the law that explains this term. Therefore, the salaried employee is a worker who is paid a set amount of compensation, also known as a salary, on a consistent time cycle. They are paid a set amount regardless of how many hours they work per week. This entails that even if, as a salaried employee, you do not work 40 hours in a week, you will be paid the agreed amount. Moreover, commonly salaried employees are not entitled to overtime pay.
Salaried employees are divided by the FLSA into 2 categories, exempt and non-exempt.
Exempt workers are excluded from the rights and regulations under the FLSA, including minimum wage and overtime. Non-exempt employees are marked under FLSA regulations.
What conditions need to be fulfilled to be an exempt employee?
Hourly employees are covered by the FLSA, which means they are paid for every worked hour. They are also paid for overtime hours, where they can choose between time-and-a-half or even double-time, and are entitled to a minimum wage. Hourly employees may enjoy a better work-life balance than salaried employees.
One issue is that they depend on the needs of the business. For example, in some periods, the company can decide to reduce the number of possible worked hours. Also, depending on the number of worked hours and how many other workers the business maintains, they may not be eligible for health insurance.
Since salaried employees have a predetermined annual compensation written in the employment agreement, which is distributed evenly every month, they will be paid this amount regardless of the actual hours they worked each day or month.
This crucial aspect provides a sense of security for the worker because it’s not easy to renegotiate a salary or cut down some hours in the case of hourly workers.
A great plus for salaried employees is that their employment contract also provides health coverage, vacation days, life insurance, and other great benefits.
Hourly employees have to clock in and out because keeping track of working hours is crucial for their payment. On the other hand, salaried employees do not need to clock in and out, but they have particular responsibilities they need to perform. Sometimes they may have to work overtime, and these hours will not be compensated.
*There are exceptions when exempt employees are entitled to some rights according to the U.S. Department of Labor and state or municipal-specific laws.
Tip: We expand on the Salaried vs hourly pros and cons.
One of the main characteristics of salaried positions is that many times, those workers work irregular hours and are not paid overtime, which can lead to the following consequences:
Keeping track of hours
While hourly employees are asked to complete a timesheet or clock in and out at the start and end of the work day, a salaried employee is not under the obligation to do this. This type of worker has specific tasks to complete, and therefore, the exact hours they work are not as important. Thanks to this factor, salaried employees have an enhanced sense of autonomy and are able to work from the office, from home, or during a business trip.
Average weekly hours
It is commonly considered that a full-time work week consists of 40 hours. A salaried employee usually does not exceed 45-50 hours per week; if this happens, the job responsibilities are probably not correctly designed.
Maximum or minimum salaried hour requirements
Nothing is imposed, and there are no minimum or maximum hour requirements for salaried employees. Since this is the case, the employer cannot reduce their payment if a salaried worker does not work 40 hours per week. Also, if they work overtime, no pay will be offered.
Still, if the salaried employee takes a vacation or personal days off, that time may be reduced from their accrued leave or from their pay.
Calculate pay for salaried vs. hourly employees
The payment for a salaried employee is calculated by dividing the annual compensation by the number of pay periods. For example, if the annual compensation is $40,000 and the worker is paid bi-monthly, the salary for each pay period will be:
$40,000 / 24 = $1,666
The payment for an hourly employee is calculated by multiplying the hourly rate by the total of hours worked. So if an employee is paid $15 per hour and works 40 hours per week, that employee’s total weekly earnings would be:
$15 x 40 = $600
However, employers must also pay overtime when non-exempt employees (salaried or hourly) work more than 40 hours a week.
Tip: We provide a salary per hour, that helps you to get the hourly, monthly, weekly, or annual amounts easily.
The rule is that salaried employees are exempt from the FLSA, which means they will not be paid overtime, but there are some aspects to consider in this matter:
Is there any circumstance when salaried employees can earn overtime?
The FLSA does not grant compensation for overtime since salaried workers are exempt, but be sure to consider any local, state, or union provisions and regulations that might indicate otherwise.
Some employers decide to include specific clauses in the employment agreement that entail specific bonuses for overtime work or days off/compensation.
Are there restrictions on overtime?
Under the FLSA, exempt workers have zero rights regarding overtime, which means the employer can ask for extra hours as needed for the business or even to make up for absences.
Nevertheless, local or state regulations should be consulted, because some states restrict employees from working certain hours or overtime.
Are salaried employees required to work weekends and holidays?
Under the FLSA, exempt employees are not paid extra for working weekends or holidays. But, in some cases, they may need to work on a weekend to complete their duties. This potential circumstance should be communicated before signing the employment agreement.
Also, employers might offer some state holidays as days off but without pay.
Is there a case when salaried employees are required to work overtime?
Exempt employees are not restricted from working overtime.
If an employee who refuses to work overtime does not fulfill his duties and responsibilities, the employer can choose to terminate his contract.
Exempt salaried workers are entitled to their full agreed-upon compensation regardless of the worked hours during a week. Fortunately for them, FLSA offers even more benefits:
If an employee misses a full day of work, the employer can deduct the absence from their regular pay. If the employee qualifies for paid sick leave, it’s compensated separately from the basic salary.
Do salaried employees have to clock in?
Exempt employees do not have to clock in; they are responsible for specific duties, not the number of hours worked. This means they are granted a higher level of trust.
What are the labor laws for salaried employees?
The Fair Labor Standards Act (FLSA) covers most of the important aspects of salaried employment, such as minimum wage, overtime, and child labor protection.
More than 180 federal laws cover the subject of “workplace.”
Do salaried employees get paid if they do not work?
The rule is that if the employee performs some work during the week, even though not the full basic 40 hours, the employer will give them the full salary.
Can you deduct pay from a salaried employee?
The following cases can lead to the employer deducting pay from a salaried employee:
What is the maximum of hours a salaried employee can work?
The FLSA does not mention any limit to the hours employers can ask salaried employees to perform.
What types of jobs are typically classified as salaried exempt?
Usually, an exempt position is an administrative, executive, professional, computer, or outside sales role. However, the job title is not enough to qualify as exempt, the employer needs to pay the worker more than the minimum wage and apply specific tests regarding the job duties.