Salary Definition: Hourly vs. Salary Pay
When was the last time you reviewed the Department of Labor’s hourly vs salary definition? Or self-audited your company to make sure you’re paying employees correctly? Because getting it right can be surprisingly tricky—especially when it comes to paying hourly employees—and payroll errors can be very costly for employers.
After all, wage and hour lawsuits have been rising for the last decade. Between record-breaking class action settlements, the headline-grabbing FLSA overtime rule, and heightened worker awareness, this litigation trend is expected to continue. For employers, that means any compliance violation can leave them highly vulnerable.
If there are weaknesses or gaps in your company’s wage and hour procedures, now is a great time to fix them. With that in mind, let’s review the Department of Labor´s salary vs hourly wage definitions, as well as strategies for ensuring you’re paying employees correctly.
Department of Labor Salary vs Hourly Definitions
The Department of Labor's salary vs hourly definition is based on how employee compensation is calculated. Let´s take a closer look at what this means.
Salaried Employees Defined
The definition of salary pay in a nutshell: a salaried employee gets paid on the basis of a predetermined annual amount. That annual salary is divided between the employer’s pay periods for the year, and the employee receives the same gross amount every paycheck (unless something changes, like a pay increase).
Salaried employees may be required to punch a time clock, but their pay isn’t tied to the hours on their time card. If a salaried employee works a bit more or less in any given week, it isn’t reflected in his or her paycheck.
Hourly Employee Definition
On the other hand, an hourly employee gets paid on the basis of a predetermined hourly rate. Hourly employees are paid for the exact amount of time they work each pay period (although they can also earn paid sick time and paid time off). Their gross pay can vary from paycheck to paycheck, because it’s determined by how many hours they actually worked during a given time.
Needless to say, Department of Labor salary vs hourly wage definitions must be applied by employers in a consistent manner, using a company-wide compensation system that’s based on job descriptions, not managerial discretion. Two employees with the same title must be paid the same way—i.e., on a salaried or hourly basis.
Ensuring Hourly Employees Get Paid Correctly
Employers should be aware of the most common pitfalls that trigger pay errors for hourly employees. These include:
- Failing to pay employees correctly for overtime or off-the-clock work
- Making unauthorized time card changes
- Allowing employees to work through mandated meal breaks.
It also includes the misclassification of exempt and nonexempt employees, which of course is tied to Department of Labor salary vs hourly employee definitions. The salary basis test, salary-level test, and job duties test all contribute to an employee’s exempt/nonexempt classification.
All of these pitfalls can—and have—triggered wage and hour lawsuits that have cost employers millions. Typically, when any of these violations occur in the workplace, it signifies that that employer does not have adequate workforce management controls in place.
So, how do you make sure that you’re not one of those employers? There are a number of preventative steps you can take, including:
- Make sure your company has a method for staying abreast of the many wage and hour laws that affect your business on the federal, state, and local levels, as well as maintaining the procedures needed to enforce them.
- Regularly educate your managers and employees on compliance policies. Put a vehicle in place for communicating changes and updates, as well as educating new employees as they are onboarded.
- Keep accurate, detailed wage and hour records, especially time sheets. If you’re accused of paying an employee incorrectly, you’ll need this documentation.
- Listen to your employees and field managers. If someone reports a problem or lodges a complaint, address it promptly and learn from it.
Avoid Costly Payroll Mistakes
Most importantly, leverage workforce management technology. When it comes to wage and hour violations, manual processes and human error are usually involved. Anything short of an automated time and attendance system that tracks all of your workforce is going to leave you vulnerable.
Furthermore, the most robust workforce management systems offer advanced reporting features and real-time alerts that can help prevent errors from happening in the first place.
Because if you’re not tracking your employees’ hours accurately 100% of the time, how can you possibly pay them accurately 100% of the time?
Let Namely make your life easier through managing crucial business functions like payroll – explore our payroll solutions today.
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