Ask the Labor Lawyer #15 - Salary vs. Hourly Wages
Question: I know that salary employees generally make more than hourly employees. But otherwise, what’s the difference? We are hiring some new employees and need to decide how to pay them.
Response: Hourly employees are paid a certain amount per hour, obviously. This amount must be at least the minimum wage. The current federal minimum wage is $7.25. Many state and local governments have their own, higher minimum wage. Employers must pay the highest applicable minimum wage for their location.
This means that hourly employees must keep timesheets, whether paper or electronic, so that you know how much to pay them. Under federal law, once an hourly employee works more than 40 hours in a week, he/she must be paid overtime (meaning time-and-a-half). Some states have meal and rest break requirements for hourly employees, as well as additional overtime and even double-time rules.
- Are paid a certain salary every month, without regard to hours worked
- Are exempt from overtime laws
- Do not have timesheet requirements
- Do not have schedule restrictions
Paying a salary provides a lot more flexibility (read: freedom) for employer and employee. First, the absence of timesheets eliminates a major administrative burden. The schedule provides for more flexibility as well. When things are slower, the employee can work fewer hours without losing pay. And when things are busier, the employer can ask the employee to work more hours without paying overtime.
A salary implies a certain level of trust. The salaried employee is responsible for managing his/her own time, within the needs of the business. As long as the job gets done, the employer does not need to micro-manage how many hours the employee is working each day.
In contrast, an hourly employee is a slave to the time clock. If hourly employees get done early, they can’t leave for the day without losing money. But as long as they are a warm body on the clock, doing the minimum not to get fired, they get paid. There is no incentive to work more efficiently or productively.
You would think that employers and employees could simply agree on the form of payment. But that is not the case. This is one area where our government has significantly burdened the freedom to work. Employees must be paid hourly – one of the least flexible and least free forms of payment – unless they meet the requirements for salary workers.
WHAT ARE THE QUALIFICATIONS FOR SALARIED EMPLOYEES?
First, there is a federal minimum salary which changes from time to time. That minimum salary is currently $684 per week, although some states have higher minimum salaries.
Even then, salary workers can only work in certain “white-collar” occupations, very strictly defined:
- Outside sales
Before paying any employee on a salary basis, employers should carefully review the legal definition of each white-collar exemption, to make sure the duties match the actual position. Otherwise, the employee should be paid hourly.
May we see the day when all work freely (but not for free),
Laura, Labor Lawyer
Please note that this post does not constitute legal advice on your specific situation, and you do not have an attorney-client relationship with Laura. If you have questions for Laura, please send to email@example.com. Such questions may be used for general edification in this column.