How Salary Pay Works
Salaried employees are paid a fixed, predetermined amount on a regular schedule, such as weekly, biweekly, or monthly. Their annual salary is divided evenly across pay periods, and the employee is paid the same amount regardless of hours worked.
Exempt salaried employees typically aren't eligible for overtime pay, while non-exempt salaried employees may qualify for overtime. Adjustments can be made for taxes, benefits, or unpaid time off, and pay is prorated if they work only part of a pay period. This provides stability and predictability in their compensation.
What Are The Differences Between Salaried And Hourly Employees?
There are several distinctions one could make between salaried and hourly employees such as the workers’ respective pay structures, job flexibility, and whether they are entitled to overtime pay.
These differences impact the overall work experience, compensation, and expectations placed on salaried vs. hourly employees. Here are the key differences between salaried and hourly employees:
| Key Difference | Salaried Employees | Hourly Employees |
| Compensation Structure | Paid a fixed annual salary, divided into regular payments (e.g., weekly or monthly), regardless of how many hours they work. | Paid based on the actual number of hours worked, with an hourly rate. The more hours worked, the higher their pay. |
| Overtime Pay | Typically exempt from overtime pay. This means they are not entitled to extra pay for working more than 40 hours in a week, depending on their classification under the Fair Labor Standards Act (FLSA). | Eligible for overtime pay, usually 1.5 times their hourly rate, for any hours worked over 40 hours in a week, as mandated by labor laws. |
| Job Flexibility | Generally have more flexibility in their work schedules but may be expected to work beyond normal business hours to fulfill job responsibilities. | Usually have more structured schedules, with clear guidelines on start and end times for shifts. They typically do not work outside their scheduled hours unless asked to do so. |
| Job Duties | Often hold managerial, administrative, or professional roles with higher levels of responsibility, involving strategic or supervisory tasks. | Usually work in roles that involve specific tasks or duties within a set timeframe, with less responsibility outside their defined work hours. |
| Benefits | More likely to receive employee benefits such as health insurance, paid time off, and retirement plans. | May not always be eligible for the same level of benefits, depending on the employer's policies and whether the employee works full-time or part-time. |
How To Calculate Pay Per Period For Salaried vs Hourly Employees
Salaried Employees:
- Start by determining the employee’s annual salary. Salaried employees are paid a fixed annual amount, regardless of the number of hours worked.
- To calculate their pay per period, divide their annual salary by the number of pay periods in a year (e.g., weekly, biweekly, monthly).
- To calculate an employee’s pay per period, use the following formula:
Pay Per Period = Annual Salary/ Number of Pay Periods
Hourly Employees:
- Start by determining the employee’s hourly rate. Hourly employees are paid based on the hours worked at a specific hourly rate.
- To calculate regular pay, multiply the number of hours worked by the hourly rate.
- Use the following formula:
Regular Pay = Number of Hours Worked x Hourly Rate
Overtime Pay Calculation:
- Start by determining the employee’s hourly rate.
- If the employee works more than 40 hours in a week, calculate overtime at 1.5 times the hourly rate for the excess hours. In many countries, employees who work more than 40 hours per week are entitled to overtime pay at 1.5 times their regular hourly rate.
- Use the following formula:
Overtime Pay= 1.5 x Hourly Rate x Overtime Hours
- The total pay that an employer receives for working overtime is their regular pay plus the overtime pay.
Total Pay = Regular Pay + Overtime Pay
The Pros And Cons Of Salaried Employees For Employers
| The Pros Of Salaried Employees | The Cons Of Salaried Employees |
| Predictable payroll costs as fixed salaries simplify budgeting. | Expecting long hours without extra pay may lead to employee fatigue and discontent. |
| Overtime pay is not a requirement which allows for employees to work for additional hours when necessary. | Limited pay flexibility because salaries remain fixed regardless of hours worked. |
| Salaried employees often show more commitment and engagement with the organization. | Salaried employees typically expect more comprehensive benefits (which means higher costs for the business). |
| A more simplified payroll process which leads to less administrative work compared to hourly pay. | There is a risk of employee misclassification under labor laws which can result in legal issues and penalties.
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How To Determine Whether An Employee Should Be Salaried
Establishing whether an employee should be salaried is an essential step in determining a fair and competitive remuneration structure for employees. This process involves evaluating their job duties, pay structure, and eligibility under local labor laws such as the Fair Labor Standards Act (FLSA) in the U.S. Here are key factors to consider:
- Job Duties: If employees are performing higher-level tasks, such as managing teams, creating strategies, or requiring advanced expertise, they are more likely to be classified as salaried (exempt).
However, If the role involves defined tasks and working hours (e.g., manual labor, clerical work), an hourly structure may be more appropriate.
- Salary: As of 2024 in the U.S., the minimum salary level for exempt employees is $684 per week or $35,568 annually. If an employee’s salary falls below this level, they are typically classified as non-exempt and should be paid hourly.
- Overtime: If overtime is a frequent part of the job, the employee may need to be classified as non-exempt and paid hourly.
- Benefits: Salaried positions often come with expectations of stability and benefits (e.g., health insurance, paid time off). If these are important to the role or the employee, the position may be more suited to a salaried classification.
Attract And Manage Global Talent With Playroll
When you employ global talent through Playroll, you gain flexibility in managing employees paid on a salary, including ensuring compliance with labor laws such as the Fair Labor Standards Act (FLSA). Our platform helps you handle payroll efficiently, from calculating salaries to ensuring you meet legal requirements regarding overtime, hours worked, and more. Chat to one of our experts to find out how we can help you scale your global team in 180+ regions, without the red tape.
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