All businesses must choose to classify their employees according to a salary vs. hourly pay structure. From an operational perspective, the choice can have a dramatic effect on your business’s bottom line.
The federal government has made some stipulations regarding what jobs are considered salary vs. hourly, but, for the most part, your business can decide for itself how it wants to classify its team members.
Which should you choose?
In this article, the workforce management experts at Sling tell you everything you need to know to make the right choice for your business so that your team members are engaged and everything runs smoothly.
Salary Vs. Hourly Pay
At first glance, salary vs. hourly pay structures may seem straightforward, but with federally mandated exceptions and exemptions, things can get complicated very quickly.
It’s essential that ownership, management, and everyone in your human resources department understand the differences between the two classifications so that you can make the right choice for each job position and the business as a whole.
What Is A Salaried Employee?
When it comes to salary vs. hourly employees, a salaried employee is one that receives a set total compensation each year (e.g., $50,000 per year).
Depending on the payroll schedule your business uses, you’ll pay a salaried employee a fraction of their total compensation each payday.
For example, if your business pays team members every two weeks and a salaried employee works 48 out of the 52 weeks each year (with no sick days or inclement weather delays), your business owes that team member $2,083.33 per pay period.
As a general rule, salaried employees are not eligible for overtime, but your business can include this provision in a team member’s contract if they meet certain requirements.
For example, your business may stipulate that a team member receives overtime if they work more than 50 hours in a single workweek.
Other Employee Benefits
Examples Of Salaried Employees
Common examples of salaried employees include:
Just because the employees in your business don’t fall into the categories in this list doesn’t mean that you have to pay them hourly. You can choose to make any position salary or hourly depending on what’s right for your team and your business.
What Is An Hourly Employee?
When it comes to salary vs. hourly, an hourly employee is one that receives compensation based on the total number of hours they work during a specific pay period. This is usually expressed as a dollar-per-hour figure (e.g., $12 per hour).
Depending on the payroll schedule your business uses, you’ll pay an hourly employee for the exact number of hours they worked between the last payday and the most current.
For example, if your business pays hourly team members every two weeks and an employee who makes $12 per hour worked a total of 78 hours in that period, you would pay them $936 ($12 per hour x 78 hours) before taxes and withholdings.
According to federal law, hourly employees are entitled to receive overtime for any time over 40 hours they work each week. Overtime is typically set at one-and-a-half times the employee’s hourly rate (some businesses offer more).
So if an employee works 41 hours in a given week, you would pay them the regular $12-per-hour rate for the first 40 hours, and $18 per hour for the additional 60 minutes.
Overtime pay adds up quickly and can seriously impact your bottom line if you don’t keep it under tight control.
We recommend putting language in your employee handbook that makes it mandatory for all employees to get permission from their supervisor before working any overtime.
Other Employee Benefits
Most hourly employees do not receive benefits like their salaried counterparts.
Your business, though, can include perks such as vacation days, sick leave, and paid holidays if it makes sense to do so.
Examples Of Hourly Employees
Common examples of salaried employees include:
As we mentioned in the salaried employee section, you can choose salary vs. hourly for any of its employees as long as it makes sense for your business. You can even change from one pay structure to the other after hiring if the individual team member agrees.
For example, if you hired a full-time employee on an hourly contract, but, because of the nature of the job, they typically stay 15 minutes past their regular eight hours (with their supervisor’s permission), every four days you’ll need to pay them an hour of overtime.
That can add up to four to five hours of overtime each month and almost 60 hours of overtime each year.
Using the $12-per-hour example already discussed, all overtime is paid at $18 per hour. So five hours of overtime per month is $90 — and close to $1,000 per year.
It might be better for your business to switch to a salary pay structure for that employee in order to cut down on the overtime expense.
Pros And Cons Of Salary Vs. Hourly Pay
Pros Of Salary
- From the business’s perspective, the pros of salaried employees include:
- No overtime
- Easier for the business to plan and project labor costs
- Flexible work hours (a perk you can offer team members)
- Simplified payroll (because of fewer pay fluctuations)
- No tracking hours
Cons Of Salary
- Employees may work less than 40 hours some weeks
- Team members could come in late or leave early
- Performance can be difficult to track without regular reviews
Pros Of Hourly
- Can be part-time or full-time
- More flexibility in setting work hours
- Part-time status can offset the cost of benefits
- Fixed schedule
Cons Of Hourly
- Business required to pay overtime if employee works over 40 hours
- Must track all hours
- Requires time and attendance systems
- Can make payroll complicated
Software Makes Salary And Hourly Pay Simple
Deciding whether to hire part-time vs. full-time employees and pay them salary vs. hourly is important for your business. Equally important is what software you use to manage, organize, and optimize your workforce.
The Sling app is the best choice to help you manage all aspects of the salary vs. hourly pay structure. First and foremost, Sling gives you unprecedented control over your scheduling process.
And with the built-in artificial intelligence, Sling automatically reminds you of requested time off, double bookings, and overtime hours so you can finalize the schedule in less time and with less effort.
Sling also acts as a time clock for your business so you can accurately track when your team members work.
Because Sling works on a variety of devices, you can set up a central terminal or allow your employees to clock in and out right from their mobile devices.
And with Sling’s powerful geofencing feature, you can prevent early clock-ins, missed clock-outs, and time theft with the touch of a button.
Sling even lets you optimize labor costs by setting salary vs. hourly wages per employee or position so you can see how much each shift will cost your business.
You can also keep track of your labor budget and receive alerts when you’re about to exceed those numbers.
All of this — and much more — will help you save money and increase profits regardless of whether you choose a salary vs. hourly pay structure for your team.
For more free resources to help you manage your business better, organize and schedule your team, and track and calculate labor costs, visit GetSling.com today.