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Hourly vs. Salary Staff
Should I pay my staff as hourly employees or can I put them on salary?
The short answer is, “It depends.”
One would think this decision would be a fairly straightforward one, especially if both you and your staff are in agreement. It certainly would be easier to pay your staff members an agreed-upon salary every pay period. Doing this would avoid the need to track hours and submit them every week or two to your payroll company. If you have a good relationship with your employees and they are fine with it, it is hard to imagine that it would be a problem. Unfortunately, this is not the case.
As a small business owner, you must be careful not to run afoul of state and federal labor laws. They have concrete and sometimes not-so-concrete ways in determining if an employee should be considered an hourly employee or an “exempted” employee (someone who is paid a fixed salary). The simple definition of an hourly employee is someone who is paid a certain amount of money for every hour worked up to 40 hours per week, and who is eligible to receive that rate plus 50% for every hour, or fraction thereof, for time worked after 40 hours. A salaried employee, or an employee exempt from overtime pay rules, receives a fixed amount of compensation per pay period, regardless of hours worked.
You should know what the labor laws are in your state, as well as the federal regulations. If there is a discrepancy between the two, the rules that “protect the rights of the employee” will be the ones enforced.
One prerequisite to determine if someone is eligible to be on salary is that they must be paid at least $684 per week. (This amounts to $17.10 per hour or $35,568 per year.). If you are not paying an employee this amount, there is no need for further discussion.
One DPCA member found out during an audit by the U.S. Department of Labor that the hourly rate of pay is not the only consideration as to whether an employee could be on salary. According to that auditor, the role of the employee is taken into consideration as well. If an employee is a worker who does not have the authority to make important business decisions within a company, it is probably best to have them be hourly employees. If it is a local standard for other practices to pay similarly trained staff hourly and you choose to have a salaried arrangement with them, you could be seen as an outlier. This standard may seem a bit vague and open to interpretation, which is exactly why you should be careful not to give an auditor cause to potentially fine you. More guidance from the U.S. Department of Labor can be found here.
According to The Balance Small Business, “… federal law allows employers to consider some employees as being exempt from both minimum wage and overtime pay based on their job descriptions: executives, administrators, professionals, and outside salespeople.” If that description is accurate, then most nurses and medical assistants would probably fall outside that definition, but a practice manager could probably qualify.
The bottom line is that as a business owner, you should ere on the side of caution. If you are in doubt, it is probably best to consider staff members as hourly employees, even if you pay them for the exact same number of hours each pay period. Before you convert them to a salaried position, it might be best to check with your accountant or a human resources professional.
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Hourly vs. Salary Staff
Should I pay my staff as hourly employees or can I put them on salary?
The short answer is, “It depends.”
One would think this decision would be a fairly straightforward one, especially if both you and your staff are in agreement. It certainly would be easier to pay your staff members an agreed-upon salary every pay period. Doing this would avoid the need to track hours and submit them every week or two to your payroll company. If you have a good relationship with your employees and they are fine with it, it is hard to imagine that it would be a problem. Unfortunately, this is not the case.
As a small business owner, you must be careful not to run afoul of state and federal labor laws. They have concrete and sometimes not-so-concrete ways in determining if an employee should be considered an hourly employee or an “exempted” employee (someone who is paid a fixed salary). The simple definition of an hourly employee is someone who is paid a certain amount of money for every hour worked up to 40 hours per week, and who is eligible to receive that rate plus 50% for every hour, or fraction thereof, for time worked after 40 hours. A salaried employee, or an employee exempt from overtime pay rules, receives a fixed amount of compensation per pay period, regardless of hours worked.
You should know what the labor laws are in your state, as well as the federal regulations. If there is a discrepancy between the two, the rules that “protect the rights of the employee” will be the ones enforced.
One prerequisite to determine if someone is eligible to be on salary is that they must be paid at least $684 per week. (This amounts to $17.10 per hour or $35,568 per year.). If you are not paying an employee this amount, there is no need for further discussion.
One DPCA member found out during an audit by the U.S. Department of Labor that the hourly rate of pay is not the only consideration as to whether an employee could be on salary. According to that auditor, the role of the employee is taken into consideration as well. If an employee is a worker who does not have the authority to make important business decisions within a company, it is probably best to have them be hourly employees. If it is a local standard for other practices to pay similarly trained staff hourly and you choose to have a salaried arrangement with them, you could be seen as an outlier. This standard may seem a bit vague and open to interpretation, which is exactly why you should be careful not to give an auditor cause to potentially fine you. More guidance from the U.S. Department of Labor can be found here.
According to The Balance Small Business, “… federal law allows employers to consider some employees as being exempt from both minimum wage and overtime pay based on their job descriptions: executives, administrators, professionals, and outside salespeople.” If that description is accurate, then most nurses and medical assistants would probably fall outside that definition, but a practice manager could probably qualify.
The bottom line is that as a business owner, you should ere on the side of caution. If you are in doubt, it is probably best to consider staff members as hourly employees, even if you pay them for the exact same number of hours each pay period. Before you convert them to a salaried position, it might be best to check with your accountant or a human resources professional.