As a business owner, it can be incredibly difficult to stay informed of all of your obligations with regard to employment practices. There are numerous laws at both the federal and state levels which are easy to run afoul of, even if you work hard to be a fair and reasonable employer.
One of the most complex and potentially damaging aspects of employment is figuring out how to properly classify and pay your workers. There are many titles out there—salaried, hourly, independent contractor, consultant—but what exactly do they all mean?
If you misclassify your employees, you could create a snowball-effect of legal problems including numerous issues regarding wages and benefits on top of the potential consequences for the misclassification itself.
Today we will take a closer look at what exactly it means to be a salaried employee versus an hourly employee, and when these classifications can apply.
The main difference between a salaried and hourly employment classification is the type of work the employees do, how they are paid, and usually whether or not they are entitled to overtime. Most jobs in the U.S., with some exceptions, are governed by the Fair Labor Standards Act (FLSA). The FLSA defines jobs as either exempt or nonexempt, with nonexempt positions being entitled to overtime pay if they cross the federal threshold for hours worked in a week (40).
Generally speaking, hourly positions usually fall under nonexempt status, while salaried positions fall under exempt status. Since salaried employees are usually exempt, they are guaranteed a set minimum amount each paycheck—oftentimes based on an annual wage figure—and the number of hours they work in a given week will not affect their paycheck.
Hourly workers, on the other hand, will be paid only for the hours they work, which will usually be tracked with some sort of time card or signed timesheet system. The employer sets the amount of hours an employee works in a given week, and they will be paid a set amount for each hour, and time-and-a-half for each hour worked over 40 in a workweek.
According to the FLSA, employees who are paid less than $23,600 per year ($455 per week) automatically qualify as nonexempt employees. However, while most hourly employees will be nonexempt, not all salaried employees will be considered exempt. In order to qualify as exempt, an employee must be paid at least $23,600 per year, paid on a salaried basis, and perform certain job duties such as high-level managerial or other white-collar functions.
An employee can be salaried but not fulfill the above requirements, meaning they would be entitled to overtime pay if they work more than 40 hours. Exempt employees, on the other hand, have no set maximum number of hours they can work and their hours will never impact their pay.
Do not put your company at risk of wage related lawsuits by failing to properly classify and pay your salaried versus hourly employees. Consult with a knowledgeable business lawyer such as Brett Trembly of the Trembly Law Firm today and ensure your company is always compliant with all employment laws.
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