As a small business owner, you may be paying all or most of your employees on a salary basis. For a lot of reasons this makes sense to structure employee pay as salary because it eliminates the need for time cards and (under the Fair Labor Standards Act), keeps salaried employees exempt from collecting overtime pay. However, switching workers to hourly pay has some advantages as well.
Eliminating Job Duty Tests
Under the Fair Labor Standards Act, classifying workers as salaried means that they are exempt of overtime pay. In order to declare them an exempt classification though, employers must run each salaried employee though the multiple “duties” tests to prove that they do in fact qualify as such. Putting each salaried worker through these required tests can be quite tedious and unpleasant for the employer. As an hourly employee, no tests are necessary to perform.
Paying Hourly Employees
Another benefit of paying hourly employees vs. salaried is that hourly employees are allowed to be payed less than salaried based on federal law. Currently, a salaried employee must make at least $455 each week, which is higher than the current hourly wage under the standard 40 hour work week. In addition to typically paying hourly employees a smaller wage than salaried employees, salaried employees will almost always be paid a set amount each pay period regardless of whether or not they physically worked a full 40 hours per week or not. Under hourly pay, you can guarantee exact payment for exact time worked. If your business utilizes part-time employment at all, hourly pay will be the most financially beneficial option to have them under.
Upcoming Overtime Changes
Something to keep in mind for upcoming changes within the Department of Labor is the increase in salary pay for exemption classification. It’s anticipated that sometime this year, any full-time salaried employee making less than $970 a week ($50,440 annually) can still qualify for overtime payment. This is why many employers are now changing over previous salaried employees to hourly pay. The reason for the proposed change is to minimize the misclassification of exempt employees solely based on their salaried wage.
If you're interested in learning more on the Wage and Hour Exemption law and upcoming changes, download Dominion's educational webinar, Exempt or Not Exempt - That is the Question.