For many employers, keeping tabs of your employees’ work hours is a no-brainer. Not only is it integral for overtime pay, but it is also a good way to see how your employees are managing their time. Most business owners will track the time of their hourly workers, it’s important to keep tabs on all employees’ schedules—yes, even those with a salary.
So, how does it work?
What’s the Difference Between Hourly and Salaried Employees?
Before we get into the nitty gritty, it’s important to understand the difference between an hourly and a salaried employee. Believe it or not, deciding whether an employee receives a salary or hourly rate is a numbers game.
According to the United States’ Department of Labor (or DOL), employees must (in addition to certain job duties) make at least $684 a week to be a salaried employee. Anything less, and your employee would receive an hourly wage. The DOL also notes a salaried employee will be paid a fixed amount every pay period—which is often bi-weekly or semi-monthly—that can’t be reduced based on the quality or quantity of your work. Translation? A salaried employee will get paid the same amount every month—yes, even if work is slow or they decide to take advantage of their vacation time.
Hourly employees, on the other hand, have to play by a different set of rules. For starters, all employers must pay their hourly worker at least the minimum wage, which is $7.25 per hour.
Instead of having a set compensation every pay period, hourly employees are paid based on how much they work. So if an employee takes time off, they’ll only get paid for the time they worked.
But if an hourly employee clocks in some extra hours? They’ll reap the rewards. You see, the Fair Labor Standards Act (or FLSA, for short) mandates that all hourly employees must be paid overtime if they work more than 40 hours in a week. While the FLSA considers overtime as time and a half a worker’s hourly wage, some employers will pay their staff double time in certain circumstances.
Psst...you can learn more about overtime wages here.
Can Salaried Employees Get Overtime?
So does that mean salaried employees aren’t eligible for overtime? Well, it’s a little more complicated than that. According to the FLSA, salaried employees are divided into two categories: Exempt and nonexempt.
As of January 1, 2020 employees who make at least $684 a week ($35,568 per year) and who meet the other requirements for being exempt under the FLSA or employees who earn over $107,432 per year and are exempt under a certain category of the FLSA can be exempt from overtime. In other words you are not required to pay the employee overtime. Under the FLSA's new regulations this weekly salary can even be lowered as you can apply 10% of certain (annual or less frequent) bonuses and commissions against the weekly salary of $684 per week or only pay $616 per week.
How to Calculate Overtime Pay for Non-Exempt Employees
Unlike hourly employees, who have a set hourly rate, salaried non-exempt employees have an annual salary. So how are you supposed to figure out the hourly rate? Well, it's time to do the math:
Workweek Hours (i.e. 40) x Number of Weeks in a Year (i.e. 52) = Number of Hours Worked Annually (i.e. 2,080)
Salary / Number of Hours Worked Annually = Approximately Hourly Rate
From there, you can calculate total pay:
- Hourly Rate x 40 = Weekly Wage
- Hourly Rate x 1.5 = Overtime Rate
- Overtime Rate x Number of Overtime Hours = Overtime Wage
- Weekly Wage + Overtime Wage = Total Pay
Why Tracking Salaried Employees’ Time Matters
Still, tracking your salaried exempt employee's hours might seem a little silly. While tracking a non-exempt employee's work schedule is required for overtime pay, is it really necessary to add clocking in and out to your team's never-ending to-do list? The short answer: Yes. Tracking all employees' time, regardless of their exempt status can not only keep your company running as smoothly as possible, but it can also boost your team's morale in the long run. Go ahead, check out these lesser-known reasons to keep tabs of your employee's time.
A Flexible Work Schedule
While nobody wants to clock in four long nights at the office, burning the midnight oil is sometimes the only option to meet a lingering deadline or complete a project before that big presentation. But, as an employer, how could you possibly know your exempt employees worked such long hours if you don't keep tabs of their work schedule?
If you have a better understanding of your salaried workers' schedules, you can cut them a break after a particularly grueling week. For example, if one exempt employee clocked in four, 14-hour workdays a row, you could keep morale high by letting them work a few hours from home on a Friday.
An Efficient Workstream
As an employer, it's only natural to make sure your money and resources are being used as efficiently as possible. While timekeeping can seem a little superfluous, it can actually help you gain some insight into how your employees are spending their time. If you notice a few employees are consistently clocking in longer hours, ask them how they spend their time. Do they have a client who demands multiple calls a day and tight deadlines? Step in and set more realistic expectations with the client. Is one department short-staffed? Consider adding an intern or freelancer to the team. Or maybe, an employee is spending too many hours chilling by the water cooler. Well, that's a different conversation.
Leverage for a Promotion
Believe it or not, time tracking is in your employees' best interests, too. If your employee is vying for a raise, accurately recording their workdays can be the leverage they need to prove they're pulling extra weight and should be compensated appropriately.
How to Track Salaried Employees’ Time
In case you didn't get the memo, clocking in and out with a proper punchcard is so yesteryear. Today, the best way to keep tabs of your employees' time is with time tracking software. To help improve recordkeeping, some programs allow employees to set up multiple tasks and upload files like project brief or email exchanges that can explain an employee’s long hours.
But before you add new software to your company, it's important that you and your employees have a general understanding of time clock rules.
While the FLSA allows employers to track time however they see fit, you might find it difficult to track a workday down to the minute. To help, the FLSA encourages employers to track time in five, ten, and 15-minute increments. For employers who are tracking time in 15-minute increments, you'll need to follow the seven-minute rule. According to this idea, seven minutes of work is the cutoff for rounding down. Translation? If your employee works eight hours and eight minutes, you will round up to eight hours and 15 minutes.
But the most important rule? Do not allow off-the-clock work. While lunch breaks are not considered work time by the DOL, putting on protective gear or waiting for someone to sign off on a work memo is. In short, anytime spent working should be compensated. It's as simple as that.
Let’s Wrap it Up
Do you want to make your records 100% accurate for all your employees, regardless of exempt status? Sign up for Hourly, which tracks and automatically records your employee’s timecards. Hourly also lets employers create custom rules like enforcing 8 hour days, 30-minute lunch breaks, and setting mandatory start times. That way, you can rest easy knowing you have more control over overtime pay before your non-exempt employees clock in extra hours.