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How Do Salaried and Hourly Employees Differ?

Payment and compensation is one of the most fundamental aspects of business law and employment law. Even if you only have one employee, you must still make critical decisions regarding how much to pay them, how often and what benefits you will offer to them. There are strict federal and state laws that govern how to compensate both hourly and salaried employees.

Salary and Hourly Wage Differences

Many companies, such as retailers and restaurants, have long used both hourly and salaried pay systems. However, internships, contractor work and temporary agencies have all contributed to a rise in hourly-wage workers in environments previously reserved for salaried employees.

An hourly pay rate for employees is often tempting due to the flexibility it offers. Businesses can adjust how many hours they are giving employees commensurate with staffing needs and revenue flow without having to use layoffs or furloughs. However, the lack of benefits and fluctuation in pay might frustrate some employees, weakening their loyalty to the business and incentivizing a large rate of turnover.

Salary, though often more expensive than hourly pay, generally provides employers with a much more stable idea of their payday liabilities, in addition to giving them more leeway with asking employees to work over their standard 40 hours. Since overtime is not a factor, businesses can require their salaried employees to stay at work as long as necessary to complete an assignment. If an emergency or critical situation should arise, salaried employees can remain on hand to handle the crisis without incurring costly overtime pay.

Another key factor in choosing between a salaried or hourly pay rate is the amount itself. Salaried employees must earn at least $455 a week, or $23,360 yearly in untaxed income, and must receive the same amount every week regardless of hours or quality of work. For many businesses, this may be acceptable, while others may struggle to satisfy payroll liabilities during seasons or times where revenue historically declines.

When choosing a pay structure for an employee or the company at large, it is essential to evaluate the needs, revenues and resources of your business. As a business owner, you should ask yourself:

  • How long do I anticipate this employee(s) will work for the company?

  • Will I be able to sustain a salary in the event of a downturn in revenue?

  • If I cannot offer a salary, what benefits could I offer to entice an applicant to accept a position?

  • Can I at least pay the median salary for my city/region/industry?

However, every business is different, as is every employee. Our Hoffman Estates lawyers can work with you to establish a pay structure that works best for your business. Contact our office today for experienced and qualified legal counsel.

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