The question of whether to have salary vs hourly employees is one that all business owners face. Both options have pros and cons, which can make it difficult to choose one over the other. Most companies offer salaried positions to some employees and hourly positions to other employees after considering which is best for each role. Before making such a major decision, it is vital for business owners to understand the definition and laws surrounding each type of employee pay.
Understanding Hourly Pay
One of the provisions of the Fair Labor Standards Act (FLSA) is that employers must pay hourly employees at least the federal minimum wage of $7.25 per hour. If the state government where the employer conducts business enforces a higher hourly minimum wage, that wage takes precedence over the federal wage. Since hourly workers are non-exempt, they must receive payment at one and one-half times their normal rate after working more than 40 hours in a single week.
The accounting software company QuickBooks reports that 55.5 percent of American workers are hourly employees. From an hourly employee’s perspective, this arrangement allows for better work-life balance and an opportunity to earn overtime pay. On the flip side, hourly workers have no guarantee of weekly hours, their schedule can be inconsistent, and they typically must receive approval before they can work overtime hours.
What is a Salaried Worker?
Salaried employees earn the same amount of money each paycheck regardless of hours worked. Since they are exempt under the FLSA, they are not eligible for overtime pay. The Wage and Hour Division of the United States Labor Department requires that employees earn a minimum salary of $35,568 annually or $684 per week before employers can classify them as non-exempt salaried workers. Other requirements include:
- Hold a position that grants decision-making authority, such as the ability to hire and fire other employees.
- Work in a position classified as administrative, computer-related, executive, outside sales, or professional.
Some benefits of a salaried position include steady paychecks, greater scheduling flexibility, better employee benefits, and simplified payroll. Employees typically view ineligibility for overtime pay and the requirement to be available outside normal business hours as negatives of this pay structure.
Factors to Consider with Salary vs Hourly Employees
The importance of each employee’s role weighs heavily into whether it makes more sense to pay them on an hourly or salaried basis. The greater an employee’s responsibilities, the more likely it is the employer will make them salaried workers. Employee skill profiles are another key factor to consider. When employers only need someone on a part-time or contract basis, hourly payment tends to make the most sense.
Schedule a Consultation with Palmetto Payroll
Choosing the right payment schedule is critical, but so is classifying employees the right way. Palmetto Payroll is available to assist South Carolina’s employers with these issues and more. Please contact us to request a time to meet and learn more about our services to small business owners.