Salary and Wages - Part 3

How should we pay our employees?  Obviously with money, but I meant, should we compensate them hourly or give them a salary?   Let’s define both very briefly first. 

An hourly employee is compensated for the hours that he has worked.  A salaried employee, on the other hand, has a fixed pay, typically paid on a monthly or bi-weekly basis. 

When considering who should be paid based on salary or wage, you should consider who is entitled to overtime.  As a general rule, everyone is entitled to overtime, even salaried employees, but, there are certain employees who are exempt from overtime. 

Here are the steps in determining how you should compensate your employees:

Step 1:  Classify your employee.  First you have to determine your employee’s primary role.   The role of your employee will determine whether he is exempt from overtime or not.  Just calling your employee a manager does not mean he is a manager if he doesn’t manage anyone. 

Step 2:  Determine if the employee is exempt from overtime. To do this, you have to look up your state’s labor laws.  If you need help with this, please send me a message. 

Step 3:  Decide on how you will compensate your employees.  If your employee is exempt from overtime then I would suggest making him a salaried employee.  If he is not exempt, it is better to pay him by the hour.

Recently, I have to evaluate an employee who has been working for me for a year and had to decide whether to pay him salary or wage.   

My first step, I defined his role.  He started off as a picker/packer and is now supervising a team of four members in the night shift crew.  He is responsible for training and managing the team.  He has input on who to hire and who to terminate. 

My second step, I referred to the list of employees who are exempt from overtime.  According to New York State Labor Law an executive employee is exempt from overtime.  An executive employee is one who customarily and regularly directs two or more other employees.  Has the authority or suggest and recommend as to hiring and firing, and customarily and regularly exercise discretionary powers. 

My final step, I determined if my employee is exempt from overtime.  In my case, my employee falls into this exemption as defined in Step 2. 

This is a very simple procedure.   For more information on compensating your employees, refer to the Federal Labor Standard Act (FLSA).   The FLSA is a federal act.  To complete your homework, you will also have to check your state’s labor laws. 

As always, if you have any questions, please leave a comment.