Hourly vs salary: how to set up each

The pay type you choose changes how paychecks, overtime and time tracking work.

Hourly employees

• Paid for each hour worked, at an hourly rate.
• You need a record of their hours, from a time clock or timesheet, approved before each payroll.
• Under federal law, hourly (non-exempt) employees earn overtime at 1.5 times their regular rate for hours over 40 in a workweek. Some states add daily overtime or other rules.
• Their gross pay changes from one paycheck to the next.

Salaried employees

• Paid a fixed yearly amount, divided evenly across pay periods. For example, $52,000 a year paid every two weeks is $2,000 per paycheck.
• Being salaried does not automatically mean no overtime. A salaried employee is only "exempt" from overtime if they meet both the job-duties tests and the minimum salary set by the Department of Labor, and some states set a higher minimum.
• Salaried non-exempt employees still need their hours tracked and overtime paid.

Exempt or non-exempt?

Typical exempt roles are executives, managers who direct other staff, some professionals and certain administrative roles, and only when the salary minimum is met. If you aren't sure, treat the role as non-exempt and track hours, or ask an employment professional. Misclassifying someone can mean back pay for unpaid overtime.

Setting them up in WageHarbor

1. Open the employee and go to Job & pay.
2. Choose Pay type: Hourly (enter the hourly rate) or Salary (enter the annual salary).
3. Pick the pay frequency and, for salaried staff, the standard hours per period.
4. Mark whether the employee is exempt from overtime.
5. Hourly employees clock in and out under My time; managers approve the hours before payroll. Overtime over your company's weekly threshold is calculated automatically.

This article is general information, not legal advice. Overtime and exemption rules vary by state and change over time.