Plus, an informative infographic: Salary Versus Hourly Employees: A Brief Overview
As a business, worth your consideration is whether to employ salaried or hourly workers. There are pros and cons for each.
There are benefits for employing exempt workers, which include pay accuracy and ease of administrating your compensation system.
Partly because work schedules are inconsistent, most workers in food service, retail and service companies are hourly or non-exempt.
Employees who work typical 9 to 5 hours at professional-service firms are most-often paid a salary as an exempt worker.
But other types of businesses such as consulting and law firms with employees who don’t work normal hours are exempt and paid a salary no matter the number of hours they work.
A salient advantage for employers paying exempt employees: You are able to budget your payroll for a year in advance; hence, payroll expenses are stable and predictable.
It even makes it easier to pay for vacation and sick-time. Moreover, you’re paying employees for their results, not merely paying for their time in doing a job.
To be considered an exempt employee – whether the person is an administrator, executive or professional – the person must be paid a definite minimum salary set by federal and state law.
Benefit for paying hourly wages
You only pay non-exempt workers for the actual hours they work.
If you’re busy, the increased payroll is counter-balanced by your increased revenue.
However, if business is slow, your non-exempt employees work fewer hours, which means you’ll only pay them for the time they work.
Easiest payroll management
The easiest method to meet payroll is to pay salaries, full or part-time especially with management responsibilities, if employees work a standard schedule.
Simply, you decide how much to pay annually, then you divide the salary by your number of pay periods.
For non-exempt employees, the federal government has requirements for break times and pay rates. Employers can face audits by the National Labor Relations Board (NLRB).
Companies might consider lowering labor costs for overtime to non-exempt workers who work varying hours. In other words, the term for them is salaried non-exempt.
This is accomplished by paying them salaries by capitalizing on the fluctuating workweek method of determining overtime – this, under some state laws and the Fair Labor Relations Act.
Why? For the total hours worked, non-exempt employees are paid a week salary if they otherwise would have been entitled to overtime pay.
How? In determining the worker’s base regular pay rate, the salary is divided by the number of hours worked during the week.
This means savings: Rather than paying time-and-a-half over 40 hours, you can elect to pay an extra .5 times their pay rate for each extra hour worked.
Downsides salaried non-exempt
However, there are at least three downsides:
It’s a tedious, complex system.
You must have a mutual agreement with the employee – rather than a fixed number of weekly hours, it must be understood the salary is pay for the number of worked hours vis-à-vis a set number of hours per week.
Even if your company isn’t busy, you’re obligated to pay employees.
See the following infographic: Salary Versus Hourly Employees: A Brief Overview.
From the Coach’s Corner, editor’s picks:
Employees – Overtime Pay Issues and FLSA Exempt Status – Many employers continue to violate wage and hour rules. To avoid costly and time-consuming legal hassles, you might want to review your overtime pay policy and all your exempt-employees’ status to comply with the Fair Labor Standards Act.
16 Best Practices to Stay out of Legal Trouble with Employees – Generally, in human resources, companies find themselves in legal hot water because they inadvertently make mistakes with their employees. It’s important to triple down on preventative measures and responses to legal hazards when necessary. Here are Biz Coach tips.
Tips for Handling Your Employees’ Wage Garnishments – Handling wage garnishments of your employees’ paychecks – including communication – is a very sensitive issue. Here are four management tips.
For Best Performance, Inspire Employees with Non-Financial Rewards – Money talks, of course, and is a way to motivate employees. But money is not always the chief motivator. Here’s why plus the four categories of ideas to inspire your employees.
Get the Maximum Benefit from Your Part-Time Employees – Are you getting the most benefit from your part-time employees? Many employers are so focused on putting out fires and taking care of their full-time staff members, they inadvertently overlook their part-time employees.
“As an entrepreneur, you never stop learning.”