In various industries and professions, hourly pay is the traditional method of compensation. Of course, companies set out to ensure that what they pay is fair for both the employee and the organization. However, occasionally, there can be some confusion in determining and distributing worker benefits. As such, it’s important to understand the ‘hourly employee’ definition and every element involved in calculating compensation for this type of worker.
What Does ‘Hourly’ Mean in a Job?
Hourly workers get compensated according to the number of hours they logged for a week. According to federal law, they are entitled to premium pay for time exceeding 40 hours per workweek.
When paid on an hourly basis, an employee gets compensated for the actual hours they worked. For these workers, the weekly schedule may change or shifts may rotate. So, their hours per week may fluctuate, and their wages may vary. Even so, they must be paid at least the minimum wage.
What Is the Difference Between a Salaried and Hourly Employee?
It’s important to understand what separates hourly workers from salaried employees. Their wages are calculated differently, and they are classified according to the type of work they do. Here are the main differences between hourly and salaried workers:
As we’ve mentioned, an hourly employee is paid for every hour they worked according to a specific rate. If they logged in more than 40 hours per week, they are entitled to overtime pay.
Meanwhile, salaried employees can be exempt or non-exempt from overtime pay. If they are entitled to overtime pay, the benefits they get are usually more substantial than what hourly workers receive.
How Do You Calculate Pay for Hourly Employees?
There’s a set rate at which an hourly worker is compensated. That rate is then multiplied by the number of hours they logged during any given pay period. Let’s say an employee’s hourly rate is $8 and they worked for 40 hours in a given week. In that case, their week’s wage would be $320 (40x$8=$320).
Under the Fair Labor Standards Act (FLSA), all hourly workers are entitled to overtime pay. So, for every hour exceeding 40 hours per week, they must be paid time and a half. Let’s say the same employee with an $8 hourly rate logged 45 hours in a given week. In this case, their wage would be calculated this way:
Regular pay: 40x$8=$320
Overtime rate: 1.5x$8=$12
Overtime premium: 5x$12=$60
Total pay: $320+$60=$380
Unless an hourly worker is covered by a labor contract, they are not guaranteed a set number of hours per week. Often, their hours per week depend on their shift schedule. In this case, they cannot expect a consistent amount week after week.
Other Factors to Consider in Hourly Work
Most of the time, hourly workers are considered non-exempt automatically. Moreover, they are usually offered “at-will” employment. This means that for any reason at any time, both parties can leave the professional relationship. There will be no legal liabilities as long as the grounds for terminating the connection do not involve any form of discrimination.
Determining whether an employee is exempt or non-exempt includes running certain tests. These tests are usually applied to administrative, executive, outside sales, and computer-related roles. Now, if the worker meets the income and other criteria, they can be considered exempt. This means that provisions for overtime pay do not apply to them. Even if they work over the standard workweek, they are not entitled to extra wages.
It’s also worth noting that regulations on overtime pay may vary from state to state. There are locations wherein workers are subject to both federal and state labor laws. In this case, their extra hours will be paid according to the standard that will offer the higher amount.
Meanwhile, employers can voluntarily compensate exempt employees for overtime work. However, they must still follow regulations covering payment for additional hours. For example, they can offer extra compensation like flat sums, bonuses, or extra paid/unpaid time off.
Another thing to note is that employers can decide that the standard workweek for their non-exempt employees is not 40 hours. For example, in a department store, managers can consider 30 hours as the regular work hours for the week. Anything exceeding that can be considered as overtime work.
What Benefits Can Hourly Workers Expect?
Companies can decide to give hourly employees various benefits like life insurance, paid time off, sick time, and health care. However, in most cases, hourly employees do not get the same benefits that salaried workers get. Moreover, a business can establish a probationary period (one to three months) that will determine if an employee is qualified to receive the benefit package. Doing so will help them decide if a person is likely to stay long enough with the company and make a valuable contribution.
Salary or Hourly: Which Is Better?
If you’re an employer and you’re wondering if paying an hourly rate is better than offering a salary, you need to consider several factors. For instance, salaried workers require consistent compensation throughout the year. Meanwhile, you only need to pay an hourly employee for the actual hours they worked. Before you make a decision, you must consider the following:
The Type of Work the Person Will Be Doing
It’s important to determine whether the employee is non-exempt or exempt. If the regulations under the FLSA define them as non-exempt, they must be paid an hourly rate. In this case, the law decides for you. Meanwhile, you can still opt to compensate an exempt worker on an hourly basis. This is the best option if there is no consistent work available for them to be salaried. Now, if the standard workweek is more than 40 hours, it may be cost-efficient to pay your employee a salary.
Crucial State Laws
Let’s say a worker is defined by federal law as exempt. You still need to review state laws that may consider them as non-exempt. So, consult with corporate lawyers to familiarize yourself with labor laws within your region. For instance, in California, you can only consider an employee as exempt if they make twice the minimum wage in the state.
Benefits as Part of Their Employment Package
If your company budget permits, you can give benefits to your hourly workers. However, it will be easier to track your salaried employees’ benefits. While convenience in benefit monitoring should not be a significant factor in choosing salary over hourly pay, it’s still something to consider.
Convenient Hourly Compensation Tracking with Traqq
Now, if you decide to pay your employees on an hourly basis, you’ll need to set up a system for easier compensation tracking. Keep in mind that the process can become complicated if your staff members work on different shifts. Moreover, it will be difficult to monitor their logged hours if they don’t have a fixed workweek. Thankfully, you can automate the process by using an employee time tracker app like Traqq.
With Traqq, you can generate a collated report of all the hours that all your employees logged. If they work on their computers most of the time, all they need to do is click Start on the tracker. The tool will automatically record their work hours, and at the end of the week, you can view their timesheets. What’s more, Traqq works online and offline. So, your hourly employees do not need to be connected to the Internet all the time.
As of this writing, Traqq is free for download. You can access all its features—including report generation and activity tracking—at no cost.
While both state and federal laws define which employees are salaried and which are compensated hourly, there’s still some room for adjustment. Consult with a lawyer to help you decide what will work best for your business. What’s important is to keep your workers happy while you ensure your business runs smoothly.