How to Determine if Employees Should Be Salaried, Hourly, or Exempt - Part 2

How Steady Is the Work When Considering If They Should Be Salaried, Hourly, or Exempt?

Your next question is how reliably you need your employees to be on the job, both throughout the week and throughout the year. Seasonal employees, for example, or employees whose schedules vary widely between seasons are usually hourly so that you can keep their schedules flexible and save money for the business during times when you need fewer hours. Employees whose hours do not vary throughout the year, like your facility and team managers, are far more likely to be salaried. Salary supplies a more reliable wage for both you and the employees. This allows you to calculate pay for these employees in a concrete way whether or not they stay late some days or come in early on others.

Salaried employees are given a reliable wage as an incentive to put in what it takes to get the job done during busy months in return for being able to leave early when the work is finished while still receiving the same pay every week of the year.

Expected Work

You want to consider the work expected from the role. Managerial, technical, and other business-casual positions that ride a desk every day are more likely to be salaried. Employees who work shifts, or irregular hours are more likely to be paid hourly. Both manufacturing and healthcare workers may be paid on an hourly basis, despite the significant difference in their work environments.

Understanding the FLSA and Exempt Regulations

Now let’s talk about the US FLSA and Exempt roles. FLSA stands for Fair Labor Standards Act. It determines how the United States expects employees to be compensated for their work. Further, this defines, among other things, minimum wage, wage standards, and overtime pay. You will also want to read up on the FLSA nationally and the employment laws for your state for details.

By default, both salaried and hourly workers have a right to overtime when they work more than 40 hours a week or more than 8 hours a day. Overtime is, as you may know, time and a half.

Exempt Employees

Exempt is a special status meaning exempt from most of the FLSA regulations. Primarily, exempt employees do not need to be paid overtime if they work hours beyond 40 a week. All employees who qualify as exempt must be counted and paid as exempt, but the qualifications are strict. These include Being salaried with a weekly pay of $455 or more ($23,660 per year or more) and passing one of the 5 Role-Based Exemption Tests.

Exemption Tests

  • Executive Test
    • Managing at least two employees
    • Hiring and firing power
    • Manages enterprise, department, or subdivision
  • Administrative Test
    • Nonmanual work directly related to managing business operations of employer or customers
    • Has the freedom to use discretion and personal judgment on significant matters
    • If educational: Primary duties are teaching and tutoring
  • Professional Test
    • Work requires advanced intellectual knowledge attained through prolonged instruction
    • If creative: Primary duties involve invention, imagination, or originality
  • Outside Sales Test
    • Regularly engages away from the business to make sales and meet with customers and sign contracts
  • Computer Test
    • Does advanced computer work, including computer programming, analysis, engineering, advanced consulting, testing or modification, and building prototypes.

Exempt employees act based on their own advanced knowledge, understanding, and judgment. It’s important to note that employers who micro-manage an exempt employee are at risk of negating that exempt status by removing the self-determination aspect of the role. So if you have exempt employees who pass one of the five tests, be sure to treat them with the respect the role deserves to maintain their loyalty and exempt status. After all, the purpose of an exempt employee is that they are willing to put in whatever time is necessary to do the job right, based on their own expertise.

Should Your Employees Be Salaried, Hourly, or Exempt?

Should your employees be salaried or hourly? Additionally, if salaried, should they be considered exempt? As you can see, the answer contains a combination of many circumstantial and industry details based on expectation. The standards we’ve explored are based on the US FLSA but the policies hold true into Canada and you can expect similar standards in international countries with comparable labor models. If you would like more information about how BrightR can help build your remote workforce in Canada, contact us today!

Leave A Reply

Similar Blog Posts

6 Clever Strategies When Expanding Your Business to Canada

The decision to introduce your products to a new market is both exciting and a…

How to Open a New Office in Canada During COVID-19

Setting up a new office during the COVID-19 pandemic in Canada can be challenging. Here…

Is Your Small Business Big Enough to Hire International Employees?

Do you own a small business that's expanding and are considering hiring international workers? Here…