Have you ever heard the phrase salaried employee, but didn’t know what it meant? Many employees earn hourly wages, so the concept of salary pay is foreign.
According to the Fair Labor Standards Act, all workers who earn under $23,600 must be paid by the hour. Although there are hourly employees who make more than that, the annual rate of pay isn’t the only factor for determining who gets paid a salary.
If you’re wondering, “How do salaries work?”, we’ll explain more below. Just keep reading.
What Is a Salary?
A salary is a monetary payment issued from an employer to an employee. Unlike hourly wages, salaries are a set amount of financial compensation paid to an employee in exchange for the work they perform on a job.
No matter how much time the employee spends performing their duties, their paycheck amount stays the same. Salaries are generally paid on a weekly, bi-weekly, or monthly basis depending on the organization that is distributing their salary.
When an employer explains the salary amount to an individual, they may describe how much that person will make per pay period, or the amount the employee will make per calendar year.
The Fair Labor Standards Act
The Fair Labor Standards Act (FLSA) is a federal law that provides mandated definitions for various types of compensation. The FLSA standards help to determine overtime pay, minimum wage laws, rules regarding tipped employees, payroll employer record-keeping, etc.
The Fair Labor Standards Act upholds these standards no matter if the employee works full- or part-time.
How Do Salaries Work?
The employer determines how often the worker is paid. For instance, if a salaried employee makes $60,000 per year, they will receive regularly scheduled payments throughout the course of the year.
However, an employee on salary must be classified as either exempt or non-exempt according to the FLSA. Here’s the difference between the two:
Exempt Salary
An exempt salaried employee is excluded from minimum wage, overtime stipulations, and other protections that are specifically provided to non-exempt workers. Usually, the exemption is only given to employees in supervisory, executive, professional, or outside sales positions.
In these instances, the employer must pay a salary instead of an hourly wage. Per the FLSA regulations, exempt status belongs to employees who:
- Regularly supervise two or more other workers
- Perform duties that include hiring, firing, promotion, or scheduling
- The primary objective of their job is management
Many supervisors also approve time so the hourly employees can get compensated for the pay period. This job duty may require the use of a check stub maker.
Non-Exempt Salary
Non-exempt workers are subject to FLSA payment requirements. Employees who are non-exempt must be paid the federal minimum wage for each hour and be given overtime of at least 1.5 times their hourly rate for any hours worked over 40 per week.
Essentially, exempt employees are expected to work as many hours as needed to complete their duties. Whereas, non-exempt employees are required to be paid overtime if they work more than 40 hours a workweek.
The Benefits of Working on Salary
There are several perks to working on a salary. For some people, it’s the way to get paid, while others prefer making an hourly income. Individuals who choose to take a management position within a company don’t always have the option to select hourly compensation.
The compensation structures mainly depend on the type of approach used to calculate the salary. Whether it’s a traditional, broad band, pure market-based or step scales salary structure, each approach will work in a particular setting. For example, a traditional approach might be successful when calculating the managerial position salaries, while a pure market-based is useful when assessing the validity of the market value.
Depending on the nature of the business, the individual has to decide if being exempt or non-exempt is best for them. Here are the benefits of earning a salary:
Financial Security
Unlike hourly workers, salaried employees have a bit more financial security. An hourly employee can have their hours cut at any time, resulting in a financial deficit. However, even if business is slow, most salaried workers can maintain their finances.
Preplanning Finances
Another great advantage of earning a salary is knowing how much you will get each pay period. Receiving set compensation removes the guesswork out of how much your paycheck will be. Depending on the hours worked, an hourly employee’s check can vary.
Furthermore, predicting future payment isn’t possible. For instance, you might expect to work 40 hours for the workweek, but if you have to miss time from work, you might not get paid for those hours. Salaried employees don’t have to worry about that.
Higher Wages
Salaried employees usually make more than hourly workers because they are expected to do more. Again, most employees who receive a salary are in a supervisory or management position.
They are required to finish their work within a certain timeframe, which often takes more time than 40 hours per week. Also, individuals in salary positions have more responsibility in their job role.
Flexibility
Since salary workers don’t have to worry about working a specific number of hours, they may be able to create a more suitable schedule. Some employers primarily focus on the quality of work and the timeframe that it’s finished.
Therefore, if a salaried employee does their duties efficiently, it could mean more flexibility for them. An adjustable work schedule allows more time for family, hobbies, and other endeavors.
Can a Salaried Employee Have Their Pay Docked?
Although salaried employees continue to get paid under most circumstances, sometimes they aren’t. An employer can dock an employee’s salary for missing full days of work, disciplinary suspensions, violation of rules, unpaid FMLA leave, and more. The grounds for docking pay is usually determined by the employer.
Do You Think a Salaried Position Is Right for You?
Hopefully, this article helps to answer your question of ” How do salaries work”? When it comes to your income, it’s imperative to know every aspect of how you’ll get paid for your work. If you’re thinking about accepting a salaried position, be sure to weigh the pros and cons.
Did you learn anything from this information? If so, feel free to browse more of our posts. Our blog is dedicated to educating our readers about money, business, and entrepreneurship.
We’re sure you’ll discover something that you didn’t know before!
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