Is It Better to Earn a Salary or Get Paid by the Hour?
Do you know whether you are exempt or non-exempt?
The Fair Labor Standards Act (FLSA) mandates that you are designated as an exempt or non-exempt employee; however, the rules and regulations only apply to non-exempt.
Here is the difference:
If you are exempt:
- not bound by minimum wage
- not bound by overtime rules that govern non-exempt employees
- you get a salary, not hourly wage
- could work 40, 55 or 80 hours (no overtime)
- FMLA
- Can collect unemployment
If you are non-exempt:
- Must be paid at least minimum wage for up to 40 hours
- Paid overtime of at least time and a half after 40 hours
- Only work hours assigned - paid for each hour worked
- FMLA
- Can collect unemployment
Although exempt employees typically make more money, they often work long hours. Here is an example:
Non exempt employee makes $15 an hour. He works on average 60 hours a week. He makes $600 for the 40 hours and $440 for the extra 20 hours, which is $1040.00 or $54,800 annually. Without the overtime, he would make $31,200; however with it his hourly rate averages out at $26 an hour.
An exempt employee working an average of 60 hours per week earns $54,800 annually, but is not paid for the 20 extra hours. So what is his hourly rate?
$26 right? That would be right if you didn’t count the 20 extra hours worked, which is what most exempt employees do. If we factor in the overtime that is not paid, he is actually making $17, $9 less than the non-exempt.
Realistically, many employers watch non-exempt overtime. In this example, the non-exempt employee would not likely average $54,000 every year. His annual earned income is always based on hours he works, especially overtime.
On the other hand, I know many exempt employees that work more than 60 hours every week.
My word of caution to exempt and non-exempt employees is “watch your hours.”
2 Comments:
At 11/28/2006 06:59:00 AM, Anonymous said…
My employer requires that all exempt employees fill out a “time sheet” to record the hours worked. A few years ago, they instituted a (non-written) policy that they would refuse to accept a time sheet reflecting more than 40 hours per week. What does that tell you?
At 11/28/2006 01:51:00 PM, The Blogging Boss said…
It is highly unusual for exempt workers to fill out time sheets, unless for tracking time spent on various projects for tracking.
To answer your question, they have a good lawyer. Sad.
Comment by Environmental Guru
I’m paid $24/hr, but I make about $65k/yr with overtime. I manage three people and a significant part of my department, so I’d like to go on exempt salary just for the status. Is that unwise? Or is there a benefit to going salary even if the pay stays the same?
Comment by eric
Thanks for the question. The decision really depends on what your driver is. I assume the driver here is your annual income. That being the case, as a non-exempt employee you get paid for every hour you work, plus a premium rate for every hour you work over 40 hours. As an exempt employee, you have a fixed salary and often work extra hours as well. The concept of overtime does not exist.
So, the question is, how many hours a week do you think you would be working if you were exempt? If it is about the same and your annual salary matches the $65k number, then you are ok. If your employer would give you a salary based on your $24 an hour rate X 40 hours a week, then you will work more hours for less money.
There is no “status” with being an exempt employee. I know the perception is out there, but dismiss that notion. It all boils down to whether you will be compensated more fairly as a non-exempt or an exempt.
If I read the last part of your comment, I am assuming your overall annual income will drop if they make you exempt. That is usually the case. Just remember, your hours may not drop. If that is the case, staying non-exempt is your answer.
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