If you are an hourly employee looking to be a salaried worker or happen to be an organization that has traditionally had hourly employees, but is now considering making them salaried, there are some points that need to be considered before making the transition.
In most cases moving an employee from hourly to salaried comes with a variety of advantages, but this may not be a universal phenomenon. You need to consider your organization’s objectives to see if this would be a right switch. Below are some of the top considerations that need to be addressed while doing the salary vs hourly comparison. The information mentioned below takes into consideration only the processes that are in effect in the United States. The process for transitioning employees in other countries may slightly differ.
Traditionally, if you have a salaried employee, they do not qualify for overtime pay, unless they are treated as a non-exempt employee. According to the Fair Labor Standards Act (FLSA), usually hourly employees are non exempt and salaried employees are exempt from overtime pay. There are of course exceptions to this rule, but those are quite rare.
For salaried employees, organizations usually provide additional benefits like insurance, retirement plans and paid time off. These can be counted as additional expenses from an organizational perspective. Care needs to be taken to ensure that employees are satisfied with the benefits package before proceeding with the finalization of the list.
Salaried employees are eligible for promotion and can expect internal growth within the organization. Many professions that are considered supervisory, professional, or managerial all fall under the salaried employee stature and are hence positions with scope for advancement. Moreover, salaried positions are overall considered more stable.
Salaried employees enjoy a fixed pay every month because their monthly payout is not dependent on the number of hours they worked. This means tracking their work hours is also easier because they usually have a fixed schedule that they adhere to.
Once all the above points have been considered and if you are choosing to move an hourly employee to salaried worker, below are the steps that need to be followed.
Step 1 – Analyze job duties
FLSA has a strict set of job responsibilities that fall under exempt duties. So, your employees’ duties need to be analyzed before converting them to a salaried worker. If they are continuing to do job responsibilities that are considered non-exempt, you as an organization will still have to pay them overtime hours, as the employee will be considered a non-exempt salaried employee.
Step 2 – Calculation of salary
Federal as well as Local government rules need to be checked to ensure that you are paying the mandated wages for your salaried employees. Minimum wage comes into the picture if your employee is salaried-non exempt. The federal minimum wage, or state minimum wage, whichever is higher, needs to be paid to your salaried-non exempt employees along with overtime pay not less than 1.5 times their regular pay. Otherwise, the FLSA requires wages of a minimum of $684 per week, and needs to be paid for salaried-exempt employees.
Step 3 – Employee Confirmation
Your converted employee needs to be made aware of the change in their employment type, and all the deductions/ additions that come with the transition. This can be regarding the benefits, overtime pay changes or even work timings. If there are any changes in job responsibilities, those need to be informed as well. Clear communication between the organization and employee are necessary to avoid future payroll issues and complaints. Employee buy-in is mandatory before you make any change to their contracts. Only once the employee has gone through and confirmed the new terms of employment, should you proceed with the transition.
Step 4 – Track Working Hours
For hourly workers, since their pay depends on the number of hours they work, time tracking is highly important to ensure accurate pay. For salaried employees, since their pay does not depend on the number of hours they work, they can be put on fixed schedules and need to be ensured that they are not working longer hours than necessary. Their time can be tracked purely for documentation purposes but is not as critical as it is for hourly workers. Any time tracking methods that were in use can be continued to be used to track work of employees. If you have a time billing setup for your clients, this information can be used for billing purposes. Even though payroll doesn’t need up-to-the minute time information of your salaried employees, this may be critical for your client billing setup.
Step 5 – Updating Payroll and HR Software
Most organizations have a payroll or HR software in place to manage their employee payouts. After you move your hourly employee to salaried worker, this change needs to be updated in your necessary software as well so that accurate payments are made to the employee. The employee contract also needs to be updated accordingly to ensure that the new changes have been agreed upon by both the employee as well as the organization. If you have a time tracking software in use, that also needs to be updated for the employee to take into consideration their new hours. If you are using an external vendor to manage payroll, they need to be informed accordingly to take the employment updates into consideration.
Though the advantages of having salaried employees are many, all the legalities revolving around the government laws need to be strictly followed before making any changes. Organizations that are found to be in violation of these laws will have to pay stiff penalties and fines along with worker compensation for their distress. If you have doubts or need clarification about labor laws and how they affect you, it is always recommended to get a legal consultation done before making any changes and to ensure you are not in violation of any rules. A strong working relationship with your employees can be the foundation for success for your organization.