Salaried Employee: Everything You Need to Know
What is a salaried employee and what is the difference between a salaried vs. a non-salaried employee? There are many less-obvious distinctions.8 min read
What is a salaried employee and what is the difference between a salaried versus a non-salaried employee? Although the differences might seem obvious, there are many less-obvious distinctions between the two types of employment.
About Salaried Employee
The most obvious, immediate difference: A salaried employee makes a fixed amount of money for a given multiday period, while an hourly employee makes an hourly wage for every hour they work.
This difference affects the work styles of the two types of employees. Hourly employees keep a timesheet, or “clock in” in some way. Salaried employees aren’t required to keep track of their time in this way.
Another major difference: Salaried positions usually aren’t subject to overtime pay. Salaried employees can look forward to the same stable paycheck for each pay period. Most (though not all) higher-paid salaried workers don’t receive extra wages like time-and-a-half for working over the federally-recognized 40-hour standard workweek.
However – as we’ll see later -- not all salaried positions eliminate overtime. Some lower-paying salaried jobs still are subject to overtime pay, per some state and federal laws. It might not equal the standard time-and-a-half paid to hourly employees.
While some employers encourage their hourly employees to take on work during holidays by offering a double hourly wage, this is not by law. Rest assured that salaried employees don’t usually receive extra pay for working holidays.
The legal description of hourly versus non-hourly employees includes the terms exempt and non-exempt. Generally, exempt employees are salaried. Non-exempt employees are hourly. However, there are exceptions. Workers paid a fee for a specific job or work unit (like technicians and independent contractors) might not be paid an hourly wage, but like hourly employees, they are considered exempt.
Some non-exempt employees are salaried, but their job descriptions fall under the nonexempt banner. These are typically lower-paid salaried types of jobs. Restaurant and retail managers frequently are considered non-exempt, even if they are formally paid a salary.
The Advantages (and Disadvantages) of Salary
Those workers who start as hourly employees oftentimes are later offered a salaried position as a “promotion.” In terms of total compensation, it oftentimes doesn’t amount to much of a step up the ladder, if any at all.
Salaried workers oftentimes are required by the demands of their positions to put in extra hours. Unlike hourly employees, there’s no obligation place on their employers to compensate them for this extra time. Many salaried workers have difficulty maintaining a work/life balance for this reason.
The advantage of the salaried position: You know what you’re going to be paid each week. There’s a sense of stability and regularity that comes with this salaried paycheck that some workers find invaluable.
Salaried positions are also more likely to have benefits associated with “real” employment. These can include health and dental coverage, but can also extend to retirement contribution matching, participation in a pension plan, paid vacations, and niceties like employer-paid cellphone plans.
The salaried position is great for those who need to be assured of a certain amount on their checks each period. The salaried position also oftentimes comes as the first step on the ladder to the greater compensation and job security afforded to “professionals” in the organization. This can have a reassuring influence on the worker that they are on the “right track” in their careers.
Hourly employees have the advantage of knowing they will be compensated for each hour they are engaged in service to the company. This is thanks to the Fair Labor Standards Act (FLSA). FLSA requires hourly employees be paid overtime for any hours worked. That includes time-and-a-half compensation for hours worked beyond 40 per week. The overtime requirement acts as a penalty against the employer for demanding more than 40 hours per week from their hourly employees. Employers are thus much more likely to demand hourly employees clock out precisely at the 40-hour mark, if not before.
In short: Salaried positions pay a stable wage regardless of hours worked and fit those workers with managerial or executive ambitions. Hourly positions compensate employees for each hour worked, and thus help guard the division between work and home-life. They do this at the expense of varying figures on each pay stub.
Though it seems the definitions should be clear enough, the U.S. Department of Labor has found reason to further state the differences between salaried and non-salaried, and exempt versus non-exempt.
“Exempt” formally means “exempt from overtime.” The Department of Labor has determined that a job title – and a salary – doesn’t necessarily mean the employee is exempt.
The Labor Department established categories of salaried employees who are considered exempt everywhere, and ones where the salaried employees might still be able to claim overtime. The truly exempt employees are in executive, administrative, and professional positions. It also covers outside sales (meaning sales to new customers, not existing ones).
The Department of Labor has specific categories of salaried employees who may be considered exempt: employees employed as bona fide executive, administrative, professional and outside sales employees.
The problem: Many companies have tried to turn their low-paid hourly employees into salaried employees to increase profits at the expense of their workers. Some salaried employees on the low end of the scale have made far less than federal minimum wage when their extra – untracked – time on the job was considered.
The Labor Department proposed a new rule in 2016 that would universally make lower-paid hourly employees overtime-eligible. A federal court stopped these efforts for the time being, and there’s no promise as to when (or if) currently-exempt employees making less than $47,476 per year will ever be universally eligible for overtime – as the regulation proposed.
The current cutoff point for exempt employees is $23,660 per year. Salaried employees paid less than that amount are generally required to be paid overtime for more than 40 hours of labor per week. As always – there are exceptions. The law does not apply to teachers, employees practicing law or medicine, nor outside salespeople.
Some further definitions around the division between exempt and non-exempt:
- The FSLA requires exempt employees be paid a full week’s wages for any week in which they work even a single hour. If they do no work during a week, there’s no requirement they be paid.
- Paid vacations are left to be negotiated between the employee and employer.
- A contract is a feature of some salaried positions, but many such jobs have no contract binding an employee. The level of the position frequently determines whether or not a contract is demanded. Executives generally have employment contracts.
- Employment contracts generally cover a job description, salary, days expected in-office, paid time off, and terms of termination. They also often have clauses covering confidentiality and non-completion.
Exceptions Are (Almost) the Rule
Before you decide on the type of job to pursue, or investigate possible legal actions against your employer for underpaying you as a salaried employee, pay attention to the exceptions to the rules we’ve discussed so far.
Some exceptions are in-place for good reasons. It would be hard to fully compensate a doctor at 150 percent for all the extra hours they must work – especially as residents early in their careers. Demanding overtime would be a detriment to society, as it would almost ensure fewer doctors available to treat the sick and injured. Hospitals would find it difficult to pay the overtime and would tend to send the doctors home early when it appeared they wouldn’t be needed. It’s obvious there could be a flaw in this plan.
Some other exceptions are harder to justify and reflect the power of lobbying organizations in the formulation of American laws. Many agricultural workers and even employees of movie theaters are exempt from overtime, for instance. It’s important to remember some jobs are specifically regulated under a separate law. FSLA is a general law that applies only where others do not.
In a general way, salaried employees are exempt from overtime, while hourly employees are not. A “salary” is defined as a guaranteed minimum amount of pay the worker can expect for any week in which they do any work at all. Helping to define the salaried employee are some conventions or rules of thumb. If an employee’s base pay is computed from a yearly total divided by the number of pay weeks, they are considered salaried. If an employee makes less money during a week in which they perform less work (or work fewer hours), they are generally considered hourly, and thus non-exempt.
The difficulty in arriving at a dead-certain definition of hourly versus salaried is exacerbated by the tendency of accounting and payroll programs to express the cost of employees in hourly terms. What it gets down to is this: If there is a guaranteed minimum for any work performed in a given pay period, that employee is salaried.
However, this applies only to monetary amounts. Demanding an employee charge absences against a bank of PTO days does not monetarily affect their paycheck. It’s also not a requirement that any employer offer paid time off at all.
Salary also can’t be directly affected by fluctuations in output or work quality. A poor performance might eventually result in a demotion or dismissal, but by law, it should not directly affect the paycheck covering that period.
Some exceptions are in place to allow an employer to dock the pay of employees in full-day increments. These apply in cases of disciplinary actions, personal leave, or sickness. There are legal definitions around each of these circumstances, and in many cases employers allow such absences to slide rather than face potential litigation.
If the employer gets too strict about enforcing the docking of pay, they can run afoul of the “impermissible” reduction definition. This can have the effect of legally moving the employee into a non-exempt category. At that point, they will be owed overtime. For this reason and many others, employers tend to let absences among exempt employees slide – or use other non-monetary means of discouraging them.
The means of defining which jobs count as exempt versus non-exempt can get quite particular, down to very subtle distinctions in duties.
Job titles aren’t always helpful. A secretary might be called an “administrative assistant,” but she (or he) is still a secretary doing the official Department-of-Labor defined job of secretary. Thus, it’s necessary in some cases to delve into what the workers are actually doing through their work days.
Are you a doctor or lawyer? Rest assured: you are exempt. No overtime for you. Same goes for other “learned” professions like dentists, teachers, clergy, architects, and higher-level nurses (but not the worker-bee LPN’s). Accountants are exempt, but bookkeepers are not. Engineers are exempt if they have certifications or licenses as professional engineers, but not if they are largely self-taught technicians of the sort who get called “engineers” in the IT field. Scientists, pharmacists, and most other employees who use “advanced knowledge” in their daily work are out of luck when it comes to making overtime.
The exempt status extends to artists and performers, of course.
The general impression given by these regulations: If what you are doing takes a lifetime to learn and can’t be easily defined by precise inputs and outputs, you are not eligible for overtime. Extra work should be its own reward in your case.
Are you in a work situation where you feel you should be getting overtime? Have questions about the real nature of your work, and how it falls into the definitions listed above? Help is only a click away. Post your legal question at UpCounsel. Our network of highly-trained (and most definitely exempt) lawyers stands ready to answer your questions about your particular employment case. Upcounsel only accepts the top 5 percent of applicants, and many UpCounsel legal professionals hail from Ivy League colleges like Harvard and Yale. Give UpCounsel a try for all your employment law questions.