Hourly Employees: Advantages of Paying Workers by Time
November 1st, 2022
Business owners often must make operational choices based on the expenses and the returns they can get from how they do business. One such decision is how you pay your staff. Most businesses handle their staff’s pay in one of two ways: salaried or hourly. Depending on the industry you are in, as well as your physical location, paying employees by the hour may be more cost-effective for you.
Salaried vs. Hourly
Before we dive into the advantages of having hourly employees, let’s look at the differences between salaried and hourly pay. A salaried employee is one that’s paid a fixed amount of money for their time. This amount typically covers the average 40-hour workweek. Keep in mind an employer may be required to pay a salaried employee overtime, per federal Fair Labor Standards Act rules. Hourly employees, meanwhile, are required by law to receive overtime pay.
The Advantages and Challenges
Paying employees by the hour can be a significant cost-saver. If your business doesn’t require you to have a full staff during all regular business hours, you can schedule hourly employees to work during certain shifts for certain hours, ensuring you only compensate the employees you need on shift for as long as they’re needed. Finally, you can also offer incentive pay to get employees to work shifts and days that aren’t popular.
Hourly pay rates have a couple of challenges that need to be considered. Positions with hourly pay tend to have a high turnover rate, so make sure your human resources staff or service provider is prepared. Also, this can make wages unpredictable, which can require careful recording of hours worked and careful calculation to make sure you’re not over- or under-compensating people. Unpredictable wages will also require careful and focused budget planning so you’re ready for the ebbs and flows.
When to Pay by the Hour
As you decide on your payroll model, there are three things you should consider: what the laws in your area require, how much you’re paying a given employee, and what their duties are. The FLSA grants non-exempt status to hourly employees if their pay would equate to a salary under $35,568 and if they meet FLSA duty requirements. Make sure to check if the FLSA applies to your business, as well as what state rules and regulations apply to you. You can look up the latter at your state’s labor office.
Whether salaried or paid by the hour, you’re required by the FLSA to keep certain records for all individual employees covered by the act. These records include the employee’s name, address, date of birth, gender, occupation, workweek days, regular pay rate and exclusions (if paid overtime), wage basis, hours worked, straight-time earnings, weekly overtime pay, deductions from and additions to wages, pay period covered, pay dates, wages paid by pay period, retroactive payment, payroll certificates, union agreements, and benefit plan documents. These records must be kept for at least three years.
Some supplemental records may also be required. These records include timecards, wage rate tables, work time schedules, and job evaluations. These records must be kept for two years. All this record keeping can prove to be a lot for some employers, which is why they outsource their payroll.
Keep Your Records Straight with Payroll Vault
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