How to Decide Between Hourly vs Salary Pay

Should You Hire Hourly or Salary First?

If you want someone to manage the rest of the team, like a supervisor or manager, you should consider salary. Managers and supervisors are the types of employees to be classified as exempt.

If you want workers, people who will be doing the labor work and daily tasks, you’ll want to hire them hourly.

However, if you only hire workers (hourly), you’ll want someone to supervise them.

What Is a Salaried Employee?

A salary employee’s pay is calculated annually and they’re usually exempt from the FLSA requirements.

They’re not required to work the regular 40 hour week but they’re also not required to get paid overtime.

The amount of their salary isn’t affected by the quality or quantity of their work.

What Is an Hourly Employee?

Someone who’s paid by the hour and who generally don’t have a contract. The number of hours worked is determined by the employer. They usually track their hours daily or whenever they work and are then checked by the supervisor.

How to Calculate an Employee's Salary

Divide their salary by the total number of pay periods. For example, you pay a manager $50,000 and the pay periods are each month, which means the employee gets paid roughly $4,166/month.

Are Salary Employee's Eligible for Overtime

Salary employees are eligible for overtime if they’re weekly is less than the minimum amount determined by the Department of Labor. So if they fall under the category of non-exempt they should be paid one and a half times their pay.

However, salary employees are almost always exempt, unless they don’t meet the requirements of having a “white collar exemption“.

Consequences of Not Paying Correctly

Regardless of whether an employee should be salary or hourly, if you don’t differentiate them correctly, you’ll be underpaying them.

Your employee might sue you for underpayment and you’ll have trouble with the IRS because you didn’t pay the proper taxes.