Labor Laws Involving Salary vs. Hourly Employees
The division conducts a full investigation, which could consist of reviewing payroll records and interviewing company representatives. Employers that need help with properly classifying employees also can get assistance from the division. The division has the power to enforce the FLSA, and there are stiff penalties and fines for intentional and repeated violations of these labor laws. To meet the FLSA salary test, an employee must earn at least $455 a week to be considered a salaried employee.
FLSA sets minimum wage amounts, overtime pay standards, and other general standards when it comes to employee pay and recordkeeping. It’s always a good idea to check out the latest updates from FLSA before hiring to ensure you are within the guidelines they currently have set. First, to be clear, paying someone a salary does not mean they are automatically exempt from being paid overtime. The Fair Labor Standards Act has clear definitions of the requirements for someone to be considered exempt from overtime and being paid a salary is only part of it. This means that you may need to track the hours your employees are working, even if you pay them a salary, so that you can appropriately pay them overtime.
What is a salary?
Among salaried employees, some are entitled to overtime and others aren’t. Salaried, exempt employees receive a fixed rate of pay according to the job they’re hired to perform, regardless of the number of hours it takes to do the work. On the other hand, salaried, non-exempt employees also receive a fixed rate of pay, but they receive 1.5 times their equivalent hourly rate for overtime pay when they work more than 40 hours in a work week.
Since federal law requires overtime for hourly employees, you could make hundreds of additional dollars per week if your job needs you for more than 40 hours a week during a busy time. Labor laws for salaried versus hourly employees are codified by the U.S. Department of Labor in the Fair Labor Standards Act of 1938. Hourly Employees – An hourly employee is an individual that is hired by a business to perform a job at a set hourly rate. This employee is considered “non-exempt” by the Fair Labor Standards Act (FLSA) which means the individual is entitled to overtime pay.
For example, your employer could have a policy stating that weekly hours over 50 are paid at a salaried exempt employee’s straight-time pay. This means you would receive your normal salary for 50 hours and the remaining 10 hours would be paid at your regular hourly rate. Workers who don’t receive proper wages or whose employers don’t pay mandated overtime can get assistance through the Wage and Hour Division of the U.S.
Is a salary better than a wage?
Employers compensate employees either by paying them an hourly wage or an annual salary. While salaried employees earn regular paychecks, even if they work long days during busy periods, certain hourly wage-earning employees are eligible for overtime pay for hours worked beyond the standard 40-hour workweek.
The FLSA rules also mandate overtime pay for hourly employees at 1.5 times their regular hourly wage. Federal law says employees who work more than 40 hours a week are entitled to time-and-half pay for the extra hours. Some salaried employees, however, are exempt from the rule. If they work 50 hours a week, exempt employees get the same salary as if they work 30.
An employer can make salary based on the employee working a certain amount of hours for the week. However, salary generally cannot be reduced unless a permissible deduction applies. Per federal law, businesses have to pay hourly employees overtime for hours worked in excess of 40 hours per week. They can still require salaried employees to work as long as it takes to get the job done.
Some of the most common questions we receive cover the definition of an exempt employee under the Fair Labor Standards Act. The definition is important because an employer must pay overtime to employees who work more than 40 hours per week unless the employees meet that definition via certain tests regarding job duties and salary. Many salaried employees are considered to be exempt from overtime pay, meaning that if they work more than 40 hours in a week they will still receive only their salary. Hourly employees are subject to the federal minimum wage laws and, as of July 24, 2009, employers are required to pay the $7.25 minimum wage. Where the state-mandated minimum wage is different than the federal minimum wage, employers are obligated to pay the higher wage.
- Generally, executive, administrative, professional, computer and outside sales employees are exempt.
- FLSA rules for exempt are varied and complex; your employer must follow them precisely, as misclassification can cause you to wrongfully not receive overtime.
- If you are exempt from FLSA overtime pay provisions, your employer does not have to pay you overtime if you work 60 hours for the week.
Salaried employees generally receive a set amount of pay each pay period, which is not based on hours or days worked. A salaried exempt employee does not qualify for overtime, but a salaried non-exempt employee does.
Pros & Cons of Salaried Compensation
There’s no additional compensation for additional hours, so a demanding boss could easily keep you at work with additional tasks. The FLSA mandates payment of minimum wage, overtime pay for eligible employees, working hours and exempt classifications for workers according to their job titles, duties and responsibilities. Exempt classifications refer to whether employees are entitled to overtime pay.
Overtime calculations can also often be difficult to determine for salaried employees because they don’t have a standard per-hour pay rate. Their pay rate when converted to hourly could vary pay period to pay period.
If you are exempt from FLSA overtime pay provisions, your employer does not have to pay you overtime if you work 60 hours for the week. FLSA rules for exempt are varied and complex; your employer must follow them precisely, as misclassification can cause you to wrongfully not receive overtime. Generally, executive, administrative, professional, computer and outside sales employees are exempt.
Hourly vs. Salary Pay
An hourly employee working one full shift per week of overtime would make an extra $1,508 per year. Most businesses use a time tracking system that pays employees by the minute, so, if you receive hourly pay, you should be compensated if you need to stay at work late.
There’s an exception for tipped employees — employers are required to pay only $2.13, according to the federal rules. However, if a tipped employee’s average wage — including tips — falls below the $7.25 minimum, the employer has to make up the difference.
Salaried employees are paid their salary regardless of how many hours they work during a workweek. While hourly employees receive overtime pay at a rate of 1.5 times their hourly rate for working more than 40 hours in a week, many salaried employees receive nothing extra for working those additional hours.
Some of these employees must receive a weekly salary of at least $455, as of 2013. As a salaried exempt employee, your employer can pay you extra if he wants to. The extra pay may come in the form of a bonus, flat sum, straight-time or time-and-a-half pay or additional time off.
The distinction between exempt and non-exempt employees often is incorrectly assumed as a mere difference between salaried employees and hourly employees. When it comes time to expand the team, startup founders are often faced with the decision of whether to hire employees on a salary or hourly basis. Hourly employees, on the other hand, may make more or less in a given pay period based on the number of hours they’ve worked. Most exempt salaried employees do not receiveovertime pay.
If your company isn’t bringing in steady business or tends to be more seasonal, hourly workers may be a good option to consider. However, hourly employees are typically nonexempt from the FLSA, which means you owe them overtime pay. Salary Employees – A salary employee is an individual that is hired by a business to perform a job at a set salary amount (whether weekly, monthly, or annually). This employee is considered “exempt” by the Fair Labor Standards Act (FLSA), which means the individual is not entitled to overtime pay.