When you go about hiring an employee, are you going to decide to make them hourly or salaried? I wish it was as simple as saying one type gets paid by the hour and the other gets a flat rate. Unfortunately, it isn’t that straightforward. If you’re a small business owner, you’ll likely say that nothing in your professional life is that easy. Because you’re not wrong, we’ll go over some of the things you need to consider when you hire a new employee. Specifically, we’ll discuss how to approach the issue of either paying your employees with a salary or an hourly rate.
The people you hire will be categorized in two different ways. Before anything, you’ll need to know if your new hire is an employee or a contractor, and you can read more about that here.
Following that, the first kind of classification is by how they are paid.
There are more layers to this than just your decision. As an employer, you will be responsible for making the right decision as to how to classify your employees, but those decisions will be governed by state and federal employment laws.
In addition to deciding if they are salaried or hourly, you will need to classify them as exempt or non-exempt.
Salary or Hourly?
To be able to appropriately figure out how your employees will be paid, you are going to need to determine the type of work that they are doing.
Here’s what you likely already know about salaried employees: they are paid based on an annual amount. This is denoted as salary. But what you probably didn’t know is that salaries are based on a 2080-hour year plan.
To know whether you pay someone a salary, look to the U.S. Department of Labor. If your employee should get paid regardless of the amount or quality of work. Simply put, if your employee is willing to work, then they get paid even if the workload is light. On the other hand, their money will not increase when the workload increases either.
An hourly employee, for instance, works based on hours. As their employer, you will decide how much they work based on the amount of work you have for them to do.
One of the responsibilities you will have as their employer will be to keep accurate records of their hours worked. Outside of overtime rules, there are no state or federal mandates regarding the number of hours you give your workers.
Hourly employees who work more than 40 hours per week are eligible for overtime pay. This is a federal law and there is no grey area. But there are state laws that outline how much money will be paid to your employees.
Here’s a good reference from the U.S. Department of Labor that outlines overtime and how to pay it by state. It should also be noted that employers are free to pay more in overtime wages than what is required.
They will, however, fall into different categories based on the hours you give. Less than 40 hours will be considered Part-Time as opposed to Full-Time. With your business, you can decide to offer benefits to your full-time employees like medical insurance and Paid Time Off (PTO).
Exempt vs. Non-Exempt
These are terms when touched on earlier. Exempt means “exempt” from overtime.
Don’t make the mistake of thinking that salaried employees fall into the exempt category. Federal laws will tell you whether an employee, including those with salaries, are exempt.
The Department of Labor has a fact sheet about the exemption status for salaried employees.
It is important to note that there are times when you must pay a salaried employee overtime. As of January 1, 2020, this requirement applies to employees who make less than $684 a week ($35,568 a year). The federal minimum rate of time and a half will be paid to these employees who exceed a 40-hour workweek.
Why This is Important
Paying your employees should be important to you regardless. They are giving their time and commitment to you and your organization for compensation. Beyond the issue of consequences, you should, as their employer, take this responsibility seriously.
Past that, there are federal and state laws dictating that you act per the rules and regulations for wages and salary. Failure to do so will result in you having to reimburse your employees for the money they were originally owed, and you could also face additional penalties and fines.
There is nothing wrong with consulting an attorney to ensure you comply with the laws set forth by the federal government and your respective state. As an employer, you are not expected to have all the answers. But you are responsible for learning them. Surround yourself with people who do know the laws, and it could be as beneficial as hiring the right employees.
In addition to surrounding yourself with the right people, be prepared by using the right tools. Using a paystub creator, you can keep accurate records of either your salaried employee paystubs or your hourly employee paystubs.
With 123Paystubs, you can create paystubs online easily and efficiently. When you use 123PayStubs, you’ll be able to adjust payments to account for everything we have discussed.
Whether you’re creating paystubs online for your salaried employees or your hourly ones, you’ll be able to add in overtime and bonuses as well. You can switch easily from making a salary employee paystub to generating an hourly employee paystub with a click of a button.