Have you ever used the term “salaried employee” as a way of describing someone who doesn’t track time because they’re paid the same amount each week? While I’m not here to correct you on your HR jargon, it’s valuable to understand the similarities and differences of “salaried” and “exempt” --- and how they don’t necessarily mean the same thing.
In an HR-appropriate world, a salaried employee refers to someone who is paid on a salary basis, regardless of hours worked. This means the amount they earn one week is the same amount they earn the following week, even if they worked less than 40 hours during one (or both) of those weeks.
However, the term “salaried employee” doesn’t necessarily mean they don’t (or shouldn’t) track time. Why? Because salaried employees are not automatically exempt.
Confused? Let’s break this down a little.
Salaried employees must be exempt from overtime to not have to track work time. And to be exempt, the employee must meet one of the below-mentioned exemption statuses. Otherwise, the employee is nonexempt and must track their work time and be paid overtime wages whenever they work more than 40 hours in a week (or 8 hours in a day in CA).
An exempt employee is a white-collar worker who is exempt from receiving overtime wages, regardless of the number of hours worked. To qualify for this status, the role must meet specific criteria that include the following:
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If a worker cannot meet the exemption criteria listed above, they are considered “nonexempt.” This means they must track hours and receive overtime pay for any compensable time beyond 40 hours worked in a week (8 hours/day in California).
You can be a nonexempt hourly employee or a nonexempt salaried employee. “Hourly” means you’re paying the employee by the hour, whereas “salaried” means a fixed regular payment.
When nonexempt salaried employees consistently work about the same number of hours from one week to the next, simply divide their weekly salary amount by the fixed number of hours agreed to work (typically 40) to get the hourly equivalent rate. Then, multiply this amount by 1.5 to get their hourly overtime rate.
Another method of calculating overtime wages for nonexempt salaried employees is called the fluctuating workweek method. This is for salaried employees whose work hours change from week to week. While this method could save your company money spent on overtime wages, it’s prohibited in some states. Be sure to check state law before making an agreement with your nonexempt salaried employees for this payment method.
If you’re unsure whether a role can be classified as exempt, you have two options:
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