Updated: Sep 12
A local organization had questions about hourly vs salaried employees and exempt vs non-exempt employees. This can definitely be confusing, especially as companies set up systems around payroll, and tracking billable hours toward projects. Here's a little information for you to chew on:
Here is a helpful page from the Department of Labor.
In order for a job to be classified exempt, it must be a salaried (not hourly) position unless it is a "computer employee". This means that in most cases no employees with an hourly rate would qualify as exempt employees.
The best practice with hourly employees is for them to record their time at work, ensuring they are taking adequate meal breaks and recording that time. The liability if employees do not record their time including meal breaks is a Wage & Hour issue and can become a class action lawsuit. Another important piece with hourly employees is that you ensure that they record all of their hours worked and pay them overtime if they are working overtime. If the employee did not work all of their normal hours that week, then they should not record them as hours worked. This is another issue that can turn into a class action if not handled appropriately.
In another situation where there is an employee being paid a salary, we would then move on to the next test steps:
- Does the employee meet the minimum wage requirement for an exempt employee?
- Does the employee qualify for an executive, administrative, professional, computer, highly compensated or outside sales exemption?
If the answer to those questions is yes, then the employee may be classified as salaried, exempt. The best practice with salaried exempt employees is to not have them record hours worked. The reason for this is because if you require them to record their actual hours worked, then they effectively lose their non-exempt status, and you are then required to pay them overtime. When a company needs to track the number of hours allocated toward projects for billing or accounting purposes, the best practice is for these employees to record total numbers of hours worked on projects each week, rather than having them record which hours were used for which projects.
If there are exempt employees, then I would recommend adding a policy to the handbook which allows deductions from their pay based on time not worked due to personal reasons. Typically deductions are made in half-day increments so that companies do not run into issues with wage and hour law around hourly vs. salaried employees.
If you're looking for more information on compensation and benefits, check out HR Building Block: The Internal Economy