Paying an employee a salary to avoid overtime pay requirements provides benefits for an employer, including payroll predictability and ease in budget planning. An employer must ensure paying an employee a salary that complies with federal regulations set forth in the Fair Labor Standards Act (FLSA). A salaried worker may still require overtime compensation if the worker's pay and job description do not meet federal requirements.
Exempt or Just Salaried
Paying an employee a salary does not automatically mean an employer does not have to pay the worker an overtime wage under the law. The worker must meet the requirements as an exempt worker under the FLSA not to receive overtime pay. As of June 2011, an exempt employee must earn at least $455 per week and meet any one of the job duty obligations, including making daily business decisions for a company, supervising an entire department within a business or acting in a professional capacity that requires constant independent thought and decision making.
Recording Work Hours
The FLSA does not require an employer to record hours for salaried employees, as is the case for hourly workers. This minimizes an employer's paperwork and makes reporting worker wages for tax purposes easier because the weekly rate is the same no matter how many hours each employee puts in at the job. An employer can also reduce purchasing and maintenance costs for time-recording equipment.
Managing Employee Payroll
Employee payroll is easier to manage when paying eligible employees a salary instead of an hourly rate. This is because pay rates are the same for salaried workers no matter how many hours worked. An employer can also better predict payroll costs and plan the rest of the company's budget because there won't be any overtime in play to affect the bottom line. This leads to a more financially efficient company that can more accurately control its costs.
Mandatory Overtime Rules
There is no restriction at the federal level under the FLSA for an employer requiring salaried employees to work longer than a standard 40-hour workweek. This essentially means an employer can require mandatory overtime for eligible salaried employees without having to pay overtime wages. This can be a boon for a company's payroll, providing longer operating hours for the same rate of pay. An employer must make sure these requirements are in place only for salary-exempt workers. Forcing salaried workers who do not meet the requirements for exempt employees under the FLSA is illegal and could result in massive civil penalties and unpaid tax obligations.
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