Properly Defining Your Employees

Although many small business owners are aware of the repercussions of not properly defining their employees – exempt or non-exempt; salaried or hourly; some small business owners still runs into problems come tax time. By not properly defining your employees’ statuses, businesses owners can face hefty fines and penalties even if the error was completely unintentional.

To avoid getting penalized and fined, business owners, especially small business owners, should understand how to properly determine an employee’s classification and how they should get paid.

Salaried Employee

A salaried employee is paid on an annual, fixed amount. The salary is divided by the pay periods based on  2,080 hours. Employees whom are salaried do not have to clock in and are not required to submit time sheets.

Hourly Employee

An hourly employee is paid on the hours that are worked. Hourly employees are required to submit time sheets and clock in and clock out.

Best Practices on Differentiating an Hourly Employee and Salaried Employee

Here are some best practices on how you can differentiate an employee who should be salaried versus hourly.

  1. Hourly employees are required by law to be paid overtime if they exceed their 40 hours in a single work week. If you have to pay overtime to these employees then this means they should be considered non-exempt and are entitled to overtime.
  2. A common misconception is that salaried employees are not entitled to overtime, however, that is not the case. Just because an employee is salaried does not make them automatically exempt. Salaried employees who make less than the minimum amount of money set by the Department of Labor are able to receive overtime and a half; they are also able to be classified non-exempt.
  3. An employee can be considered exempt if they pass the white collar exemption test. Senior executives, managers and supervisors are most commonly classified as exempt.

For more information about overtime, white collar exemption and other employee law information, please visit the Department of Labor’s website .

Also – don’t forget Easy Time Clock is a cloud-based time and attendance system that provides a comprehensive, accurate, and affordable solution allowing employees to clock in and out with a computer, mobile device, or biometric reader. Let us keep track of your hourly employees’ time and benefits!

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