A salaried employee receives a predetermined amount of compensation each pay period, regardless of how many hours they work. For example, a full-time employee would earn the same amount whether they work 35 hours or 45 hours in a week.
How do Salaried Employees Get Paid?
Say you’ve contracted an employee to work 40 hours each week. They may work 40 hours one week, 37 hours the next, and 45 the week after that. As salaried employees, they’ll receive the same basic salary for each of these weeks.
This is different from hourly employees, who are paid based on the actual number of hours they work. An hourly employee who worked 37 hours one week and 45 hours the next would receive different amounts for those two weeks.
Salaried Employees and the Fair Labor Standards Act
The Fair Labor Standards Act (FLSA) governs how employees are paid for the hours they work. Employees can broadly be categorized as exempt or non-exempt from the requirements of the FLSA.
Professional employees who fall into specific job categories may be exempted from FLSA pay requirements. FLSA-exempt employees do not need to receive overtime and can be paid the same salary regardless of how many hours they work.
In practice, this means that most FLSA-exempt employees are salaried. If you’re able to classify your employees as FLSA-exempt, you can save your company money by paying a salary. That’s because FLSA-exempt workers do not need to be paid overtime. In addition, the spend on payroll for salaried employees is fixed during any given week, which saves administrative costs.
FLSA non-exempt employees can also be paid a salary, but this is rare since employers run the risk of paying for hours that an employee didn’t work. If you do decide to pursue this option, however, the salary must be high enough to cover all hours worked plus any overtime pay. If the salary doesn’t cover this amount, you’d have to make additional payments to the employee.
Benefits of Having Salaried Employees
There are pros and cons to paying employees a salary as opposed to an hourly rate. Let’s take a closer look at some of the benefits:
- No overtime pay: Hourly employees are paid overtime at 1.5 times their base wage rate. So, hourly employees can get expensive if they routinely work more than 40 hours per week. Salaried, FLSA-exempt employees do not need to be paid overtime, which can save you a significant amount of money on payroll.
- Reduced administration costs: Paying employees a salary can reduce the cost of payroll administration. You don’t need to track hours or approve timesheets, and you know how much you’ll spend on payroll each week. Keep in mind that for FLSA non-exempt employees, you must still track hours even if the employees are paid a salary.
- Stable income for your employees: Salaried employees are paid the same amount every week. So they know how much money to expect in their paycheck and can plan accordingly. That can make it easier for your employees to manage their finances and reduce employee turnover.
- Easier to offer benefits: Offering benefits to salaried, full-time employees is much simpler than offering benefits to hourly employees. That’s because salaried employees receive the same pay each week, so they can set aside a specific amount for healthcare premiums or a retirement plan.
Drawbacks of Having Salaried Employees
However, having salaried employees isn’t always ideal. Here are some of the disadvantages of paying employees a salary:
- Less incentive for overtime: Salaried employees don’t earn overtime. Overtime pay can be a powerful incentive for employees to work extra hours. To get around this, you could consider offering bonus pay when your company is extra busy or approaching important deadlines.
- Reduced work-life balance: Salaried employees often work more than 40 hours per week, which can make achieving work-life balance difficult. That can lead to higher rates of employee burnout.
Should Your Company Pay a Salary?
Deciding whether to pay an employee a salary comes down to a few different factors.First, consider whether the employee is FLSA-exempt or non-exempt. Most employers choose to pay FLSA-exempt employees a salary and to pay non-exempt employees on an hourly basis. While non-exempt employees can receive a salary, you’ll still need to track their hours and pay extra for any overtime.
Another thing to consider is whether an employee’s role requires a consistent number of hours each week. If a role requires an inconsistent schedule—say, working 25 hours one week and 40 the next—then hourly pay might make more sense. Otherwise, your business could end up paying for hours that aren’t needed.
If your business wants to offer benefits such as health insurance, life insurance, or a retirement plan, it may be easier to do so for salaried employees. These employee benefits can play an important role in hiring and retaining top talent.
Finally, if a particular role could be either salaried or hourly, consider asking the employee in that role what they prefer. Some employees like the stability of having a salary. Others prefer the extra flexibility and incentives that hourly pay provides.
Salaried employees get paid the same amount each week regardless of how many hours they work. Paying a salary has many benefits, including reducing payroll and administrative costs. Employers typically pay salaries for FLSA-exempt job roles, but FLSA non-exempt employees can also receive a salary.