When creating your company’s payroll process, there are several elements to consider. Pay periods, providers, software, labor laws - they will all impact the bottom line. As you consider job descriptions, headcount, and budget, another major factor in your payroll decisions should be whether to pay certain employees a salaried or hourly wage.
Choosing to offer salaried positions can make an employer attractive to talented prospects, but that decision does mean following a different set of legal criteria than when employing hourly workers. In many cases, overtime is one of those major differences.
Overtime can be a delicate topic to navigate, both from a legal standpoint and when explaining the position to employees. With that in mind, let’s break down the legal guidelines for overtime wages for those on salary.
First, what is technically considered overtime?
Unless otherwise stated per individual state rules, overtime is any time that nonexempt employees work beyond the standard 40-hour workweek. Those working hours must be paid at the regular hourly rate, plus 50 percent, commonly referred to as “time and a half.” Overtime encompasses any hours, including nights or weekends – any time that puts the employee over the standard 40 hours.
While states differ on aspects of labor and wage laws, the general guidelines come from the federal government is the best place to start. Specifically, overtime laws for salaried employees, as well as all other covered employees, are outlined in the Fair Labor Standards Act (FLSA). From there, business owners should consult the hour and wage laws in their state for exceptions and updates.
What are the overtime laws for salaried employees?
One common misconception is that salaried employees are unable to earn overtime pay. That is not necessarily true, as nonexempt employees covered by FLSA must be paid overtime for eligible hours.
It is common, however, for salaried employees to be exempt. FLSA overtime guidelines put the burden on businesses to designate why an employee would be exempt from earning overtime pay. There are several exemptions an employee might qualify for, they must meet certain job responsibilities and meet a base salary threshold.
The FLSA guideline exemptions include: executive, administrative, professional, computer, and outside sales, among others. Overtime laws for salaried employees can be intricate, but the qualifications for those exemptions are generally as follows:
Employees that qualify for the executive exemption must not only meet the minimum weekly pay but also must have primary job responsibilities that include managing the business or a department in the business. They also must manage or supervise at least two other full-time employees and have the ability to hire or fire other employees.
In addition to the minimum weekly pay, an employee who qualifies for administrative exemption must also have the primary responsibility of office work (non-manual labor) related to the operations of the business. Exercising discretion and independent judgment is another requirement regarding those duties.
There are two segments within the professional exemption: learned professionals and creative professionals.
The learned professional must have a primary duty of performing advanced work that is “intellectual in character” and regularly requires discretion or judgment. That advanced knowledge must be in a field of science or learning and acquired by specific education.
The creative professional must have a primary duty of performing work of invention, imagination, originality, or talent in an artistic or creative arena.
Computer Employee Exemption
As one of the more detailed exemptions, several different job duties may qualify an employee for the computer exemption. First, this exemption could work for both a salary or fee basis, though those are still the same minimums. The fee basis calculates out to just under $28 per hour.
According to FLSA overtime guidelines, the employee must be in a position such as a systems analyst, programmer, a software engineer, or a position that uses another related skill. The primary duties for those positions should be consulting with users, designing, or developing computer systems or programs, or a combination of those skills.
The above examples are only a few of the many exemptions for which employees might qualify, meaning businesses would not be required to pay them overtime. The FLSA defines several more, such as outside sales employees, highly compensated employees, and others.
The base salary for consideration of exempt employees is $684 per week. That minimum salary requirement rose by more than $200 per week at the beginning of 2020, meaning fewer employees are exempt, and therefore more salaried employees are entitled to overtime pay.
Ask Payroll Vault for Guidance
The complexity of determining which exemptions your employees might earn — and the resulting effects on your payroll budget — is one reason why outsourcing your payroll and workforce management can provide so much value to your business.
Payroll Vault has local offices near you to combine the knowledge of these overtime laws for salaried employees with the local legislation and tax policies specific to your location. To get started, view Payroll Vault’s HR software solutions to see how a local payroll service can set your business on the right path.