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How Should I Decide Whether to Pay a Salary or an Hourly Wage?

In this episode, we break down salaried versus hourly pay. This is going to be Part 1 of 5 for our weeklong coverage of the exempt and non-exempt from the Fair Labor Standards Act (FLSA).

The Fair Labor Standards Act (FLSA) requires that most covered employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.

There are a few exemptions, all of which fall under the general class of “white-collar employee” (which does not appear anywhere in the FLSA but is recognized as the short-hand term). The FLSA and associated Department of Labor regulations exempt employees employed as bona fide executive, administrative, professional, and outside sales employees, certain computer employees.

To qualify for an exemption, employees generally must meet certain tests regarding their job duties and compensation.

For the FLSA exemptions to apply, an employee generally must be paid on a salary basis of no less than $455 per week and perform certain types of work that:

  • Is directly related to the management of his or her employer’s business.
  • Is directly related to the general business operations of his or her employer or the employer’s clients.
  • Requires specialized academic training for entry into a professional field, or is in the computer field.
  • Is making sales away from his or her employer’s place of business.
  • Is in a recognized field of artistic or creative endeavor.

Exempt employees do not need to be paid for any workweek in which they perform no work.

The employer may make deductions under certain circumstances:

  • When the employee is absent from work for one or more full days for personal reasons other than sickness or disability.
  • For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy, or practice of not providing compensation for salary lost due to illness.
  • To offset amounts employees receive as jury or witness fees, or for military pay.
  • For penalties imposed in good faith for infractions of safety rules of major significance.
  • For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.

Also, an employer is not required to pay the full salary in the initial or terminal week of employment, or for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.

About the author, Rhamy

Rhamy grew up watching and working with his mother and grandmother in the senior insurance market. This familiarity with the struggles faced by people trying to navigate the incredibly complicated and heavily regulated healthcare market led him to start Poplar Financial while working on his degree at the University of Memphis. After completing his MBA and Bachelors in Finance and Economics, Rhamy guided Poplar Financial through the disruptive opportunity that is the Affordable Care Act. Since then Poplar Financial has received numerous awards from major insurance carriers and has completed its fourth year in a row of doubling in size. Now his team focuses on the processes around human resources and specializes in providing companies with between 20 and 1000 employees with the payroll, benefits, and HR needs.

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