There are some definite pros and cons of paying your staff a salary vs hourly wages, and you’ll need to weigh all of them when you’re hiring new employees.
For example, a salaried employee will be paid the same wage no matter how much they work. There is no need to track the number of hours they work, which can make things easier when it comes to payroll. You can also offer a more flexible schedule to a salaried employee as an incentive for working for your company. These are all great reasons to pay a salary as opposed to an hourly rate, but it also doesn’t give employees much of an incentive to work longer hours when necessary. In fact, a salaried employee could conceivably show up late for work and leave early and not lose any of their income. This is why most salaried workers are high-ranking employees who understand what is expected of them. They usually need to show that they won’t abuse the flexibility that comes from being paid a salary.
Meanwhile, hourly employees are paid a certain rate for every hour that they work. Most states also require hourly employees to be paid time and a half when they work over 40 hours a week. In other words, the more an hourly employee works, the more they make. While it can be a hassle to keep track of the hours an employee works, there is more of an incentive for hourly employees to work longer hours than salaried employees. Hiring hourly employees can also be helpful if you don’t need a staff member to be present at all times. If there isn’t as much work available for your staff, you can simply schedule your employees for fewer hours. If you find that there is more work to be done, you can increase the number of hours your staff will work, and they will be paid accordingly. On the other hand, paying employees by the hour can get expensive if they need to work overtime.
Exempt vs. Nonexempt
The biggest factor when determining whether your employees should be salaried or paid hourly is to determine whether or not they are exempt. An employee who is exempt isn’t required to be paid extra for working overtime, so it might make sense to pay them a salary instead. However, an exempt employee can still be paid hourly if there isn’t enough regular work for them. They are brought in when they are needed, and they are paid accordingly. Meanwhile, the law states that nonexempt employees are required to be paid time and a half when they work overtime. They are all but required to be hired at an hourly wage. Then again, the extra pay could be a good incentive for many employees to work longer hours, so it could result in a more productive staff.
In the end, there is no right or wrong answer when it comes to paying a salary vs hourly wages. There are pros and cons to each option, and it is up to you to look at your payroll and the work that needs to be done when deciding how your staff will be paid.