Pay Only For What You Need

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I enjoy the Liberty Mutual Insurance advertisements! They have a simple but understandable message which essentially says, “When purchasing insurance, pay only for what you need”. And they say it over and over again and again and again and again…

This is not an article about buying insurance; it’s about selecting the best compensation plan for the majority of your employees (or paying for what you need). If that’s of interest to you, read on!!!

What about salaries?

A major plus of salaries is that salaries are simple (sort of). Exempt and Non-Exempt employees may be paid a salary. You set the amount and pay it. This is true whether the employee works a lot of hours or just a few… well, sort of. It’s the amount you pay unless the employee is a Non-Exempt employee who has worked more than 40 hours during the established company work week. Then, just like the Non-Exempt employee who is paid an hourly wage, you must pay the employee overtime for work more than 40 hours during the work week.  This leads to the question: What if the Non-Exempt employee is paid a salary and works less than 40 hours during the week? You must pay the employee the full salary (with a few exceptions). You are no longer paying only for what you need.

Are you ready for another wrinkle?

What happens if you have employees who qualify according to the Duties test as Exempt employees and you pay them a salary, but they work only part-time?

In reality, there are no part-time Exempt salaried employees…

Even if you tell such employees they are to work part-time, you must, in essence, handle them as if they were full time employees (as follows):

Exempt employees are not bound by time; they are not bound by quantity or quality of work.  The only issue that exists is how much you pay them each work week….

If you tell Exempt employees they have a part time schedule, you must still pay them the full amount of salary you agreed to pay them as long as it meets the exempt pay test, i.e. at least $684/week or $35,568 annually.  And you must pay them even if they don’t work full-time (although there are some exceptions that allow you to dock an exempt employee’s pay).

Exempt employees are paid a set amount to accomplish tasks regardless of how much time they spend… In reality the employee decides the amount of time the job requirements take, and you determine the job requirements and deadlines to be done…

There are other issues to consider when deciding between salary or hourly compensation, but one example is the issue of whether to pay the employee for snow days.  As a general rule, you should pay salaried employees for snow days (although there is an exception), but you do not have to pay hourly for snow days (although you may).

In conclusion, I’ve prepared this article to offer some ideas on how to proceed.  My general rule 4-step rule of thumb for compensation is:

1. Do follow the Wage and Hour rules for Exempt employees.
2. Do follow the Wage and Hour rules for Non-Exempt employees.
3. Do pay Non-Exempt employees by the hour (or talk to us if you’re considering paying Non-Exempts a salary).
4. Don’t have part-time Exempt salaried employees.

Executive Advantage specializes in designing compensation plans. Call if you would like some help…