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You are here: Home / Blog / “Salary” vs “Hourly”

“Salary” vs “Hourly”

One of the many compensation decisions a business owners have to make is whether to pay non-exempt employees a salary or hourly wage.

Salary verses hourly wage is typically an exempt/non-exempt issue, but not always. Business owners may choose either payment model, so it is our intent to point out some of the pros and cons of each so you may make wise decisions with regard to the question: should I pay a salary, or should I pay an hourly wage?

Both salaried non-exempt and hourly wage persons are eligible for overtime whenever they work more than 40 hours during the work week. With regard to overtime, there is no benefit of one method over the other. Here’s a pro for the hourly wage method: business owners are only required to pay hourly employees when they work. The con to paying salary to a non-exempt is that  the business owner pays salaried employees whether they work or not.

Here’s a wintry example. Let’s say there’s a heavy snow storm and the business owner needs to chose between closing the business or letting it remain open.
If the business owner chooses to close the business, s/he doesn’t have to pay hourly employees, as hourly employees only get paid when they work. However, in this case the business owner must pay the salaried employee, because salaried employees are guaranteed to receive their total salary when the business chooses to close.  Here’s a slightly different spin. If the business remains open, the employer pays the hourly employees who actually work that day, and pays the salaried employees their salary if they come to work. If the salaried employee chooses to remain home then the business owner may deduct a vacation (PTO) day from the employee’s accrual so s/he gets a full pay check. If the salaried employee doesn’t have any PTO/Vacation accrual, the salaried person must still be paid.

Is this a con for choosing to pay non-exempt personnel salaries instead of by the hour?

There are many other twists and turns in the non-exempt salaried/hourly wage discussion that may be discussed, including exceptions to the simplified rule of thumb above. Here’s a suggestion: Why not make up a list of your compensation questions and schedule a coffee one to one meeting soon.

To contact Doris phone (573) 819-0706 or Bob phone (573) 819-2436

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Executive Advantage provides business planning, human resources assistance and specialized training for small to medium sized businesses. We take a practical approach to human resources in recommending solutions to clients.

Recent Posts

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