Laws on Work Hours for Salaried Employees

When creating a team, employers need to decide whether to pay their workers with salaries or hourly wages. This choice depends on how the company is set up, the type of industry, what each job involves, and labor laws like the Fair Labor Standards Act (FLSA). Before considering these factors, business owners who are new to hiring must first understand what it means to have salaried employees.

What is a Salaried Employee?

A salaried employee is a worker who receives a set amount of pay regularly, whether weekly or monthly, regardless of how many hours they work. This is different from hourly employees, who get paid based on the number of hours they work.

Salaried employees are usually expected to complete their tasks regardless of how long it takes, whether they work a full day or just part of the day.

Important Facts About Federal Labor Laws for Salaried Employees

Federal labor laws, especially the Fair Labor Standards Act (FLSA), are crucial in outlining the rights and responsibilities of salaried workers in the United States. These laws include specific rules for different types of employees, such as exempt and non-exempt workers. The FLSA sets a basic national standard, but states can enforce stricter rules if they choose.

The Role of the Department of Labor

The U.S. Department of Labor (DOL) is a key in making sure federal labor laws are followed. They provide helpful information and guidelines to help employers understand and comply with the FLSA. The DOL ensures that employees' rights are protected, especially regarding salary, minimum wage, and overtime pay.

Changes to the FLSA and their impact

Proposed changes to the FLSA, especially regarding the salary threshold for exempt employees, are important. The DOL has suggested increasing the minimum salary needed to be exempt from overtime pay. When this change happens, many workers who are currently exempt may become non-exempt, meaning they can qualify for overtime pay.

Employers will need to watch these changes carefully to stay compliant with the law. They may need to adjust their payroll and human resource practices to comply with the new rules.

Salary vs. Hourly Pay

How are salary and hourly pay different? Explore their differences here.

Salary pay

A salaried employee receives a fixed amount of money regularly, no matter how many hours they work each week. For instance, when an employee is paid $1000 every week, they get this amount even if they work fewer or more than 40 hours. A salary can only be reduced when the employee misses an entire workday. Calculating overtime for salaried employees can be complicated (more on this later).

The main advantage of salary pay is stability. While hourly employees have their hours (and pay) cut due to business needs, salaried employees get the same pay even if they work less, as long as they meet their job requirements.

Hourly pay

An hourly employee earns money based on the hours they work. Their pay changes depending on the number of hours worked each week. For example, when an employee earns $15 per hour and works 40 hours in a week, they make $600. When they work 39 hours, they make $585.

Hourly employees often benefit from overtime protections under the Fair Labor Standards Act (FLSA). They are entitled to extra pay when they work more than 40 hours in a week.

Minimum wage

The FLSA also sets the minimum wage, the lowest amount an employee can be paid per hour. The lowest pay set by the federal government is $7.25 hourly, but some states enforce higher minimum wages.

Overtime pay

According to the FLSA, overtime is any work done beyond 40 hours in a week. Employees protected by the FLSA must be paid at least 1.5 times their regular pay rate for overtime hours.

For example, when an hourly employee earns $15 per hour and works 41 hours in a week, their pay is calculated as follows:

Regular pay for 40 hours: $600 (40 hours x $15)

Overtime pay for 1 hour: $22.50 (1 hour x $15 x 1.5)

Total pay: $622.50

Remember, not all employees qualify for overtime pay, and understanding which employees are exempt from these rules is crucial for employers.

How Does Overtime for Salaried Employees Work?

Overtime pay is an important part of the Fair Labor Standards Act (FLSA), but many people misunderstand how it applies to salaried employees. Not all salaried employees are automatically exempt from overtime.

Overtime pay rules

According to the FLSA, non-exempt employees must receive overtime pay for hours worked over 40 in a week. This overtime pay is one and one-half (1.5) times their regular pay rate.

Federal overtime guidelines

The Department of Labor has rules to help decide whether salaried employees are exempt or non-exempt from overtime. These rules include the salary basis test and the duties test.

Exempt employees, who usually have executive, professional, or administrative jobs, must meet certain job duty requirements and earn a salary of at least a specific minimum amount.

As of 2024, this minimum salary is $684 per week, which equals $35,568 per year. Remember, this amount may become different depending on state laws.

Common misunderstandings

Many people think that all salaried employees are exempt from overtime, no matter what their job duties or salary are. It's important to know that exemption depends on more than just being salaried.

Factors such as job duties, hours worked, and salary level are all important. Employers need to classify employees correctly to follow the FLSA rules and avoid breaking the law.

Other Salary Laws and Exceptions

Besides paying some salaried employees overtime, there are other rules you need to know when handling payroll. Some of these rules are for specific industries, while others apply to almost all businesses.

7i Exemption

The FLSA has special rules for retail employees who earn commissions. Section 7i of the law says that these employees must remain getting at least minimum wage and the right overtime pay. Retail workers, such as salespeople and some service providers, who meet the 7i exemption requirements may not need to be paid overtime. These conditions are subject to change from week to week.

To qualify for the 7i exemption, three conditions must be met:

• The employee must work for a retail business.
• The employee must be paid more than 1.5 times the minimum wage after including commissions.
• The employee's earnings must be mostly from commissions, constituting over fifty percent of their total pay.

This calculation is complex, and there's no easy way to tell whether an employee is exempt from overtime pay. For salaried employees who earn commissions, there may be a need to recalculate their hourly rate with commissions each week to see whether they meet the exemption criteria.

Union rules

Under U.S. law, companies must negotiate with labor unions for any union employees. For instance, when you hire an electrician from a union, you’ll need to work with union representatives to agree on things such as:

• Working hours
• Working conditions
• Pay (including overtime)
• Holidays

For some salaried employees, you may need to follow specific rules outlined in local union agreements, called collective bargaining agreements (CBAs). While these rules aren't laws, you are legally required to follow them, and they can greatly affect your payroll.

Understanding the rules about work for people who earn a salary can get tricky. The laws can change often, so it's important to keep track of decisions made by government agencies such as the Department of Labor.