Tips for Determining Whether Employees Should Be Hourly or Salaried
When considering your balance of hourly employees vs. salaried employees, it's important to keep regulations and industry standards in mind.
As a business owner, you can pay your nonexempt employees by the hour or through a fixed salary. When building your workforce and evaluating your organization's structure of hourly employees vs. salaried employees, it's important to consider the nature of the role, the job duties, salary and your industry. No matter what you decide, you'll need to follow all relevant labor laws and wage and hour rules.
To determine which type of payment classification makes the most sense to establish in a given hiring scenario, ask yourself the following questions:
What Are My Industry Norms?
Industry norms tend to exist for a reason. For example, hospitality businesses often pay their workers hourly because of the seasonal demand of their industry. However, while a hotel desk clerk may only be needed during the summer months, a general manager may be needed all year. By looking to your industry's norms, you can get a good feel for which wage structures make the most sense for the types of workers you employ.
What Are the Unique Needs of My Business?
In the absence of, or in addition to, easily applied industry norms, look to your own business needs in your discussion of hourly employees vs. salaried employees. As Entrepreneur puts it: "If you regularly need to ramp your head count up or down — say, on a monthly or seasonal basis — then it usually makes more sense to pay an hourly wage. But to retain a stable work force with high skills and low turnover, salaries are a better bet."
What Are the Fair Labor Standards Act (FLSA) Regulations?
The FLSA is a federal wage and hour law that requires most employers to adhere to certain minimum wage and overtime requirements. Under the FLSA, you are required to track and maintain records of hours worked by every nonexempt employee, and pay them overtime — time and a half — for any time worked over 40 hours per work week. The United States Department of Labor (DOL), which is responsible for enforcing the FLSA, requires you to follow certain employee classification rules.
Employees who are "exempt" from the FLSA are not eligible for overtime. Remember that even though the terms "hourly" and "nonexempt" are often used interchangeably, nonexempt employees can be paid on either a salaried or hourly basis. In either case, you must track all hours worked by nonexempt employees and pay them overtime for hours worked over 40 in a workweek.
Finally, don't forget to follow the state and local labor laws and wage and hour rules for all of the locations in which you operate, as these jurisdictions may have their own requirements. Employers should always comply with the rule most generous to the employee. And especially in ambiguous situations like this, don't hesitate to bring any questions you may have to your legal advisor.