An hourly employee is a worker who is paid based on the number of hours they work, typically receiving an hourly wage and eligible for overtime pay for hours worked beyond the standard 40-hour workweek.
Who is considered an hourly employee?
An hourly employee is a worker who is paid based on the number of hours they work. They receive an hourly wage for each hour worked and are typically entitled to overtime pay for hours worked beyond the standard 40-hour workweek. Hourly employees often work in roles such as retail, hospitality, manufacturing, and administrative support.
When should you hire an hourly employee?
Hiring hourly employees is beneficial in various scenarios, including:
- Variable workloads: When business demand fluctuates, such as in retail or hospitality.
- Part-time needs: For positions that do not require a full-time commitment.
- Seasonal work: During peak seasons or for temporary projects.
- Budget control: When you need to manage labor costs effectively by paying only for hours worked.
Pros and cons of hiring hourly employees
Pros of hiring hourly employees
Cons of hiring hourly employees
Flexibility: Ability to adjust work hours based on business needs.
Variable costs: Labor costs can fluctuate depending on hours worked, making budgeting more challenging.
Lower costs: Pay is directly tied to hours worked, helping control labor costs.
Less integration: Hourly employees may be less invested in the company compared to salaried employees.
Overtime pay: Incentivizes employees to work additional hours when needed.
Benefits eligibility: Hourly employees may not be eligible for the same benefits as full-time salaried employees, affecting retention.
How do hourly employees get paid?
Hourly employees are compensated based on their hourly rate. Their wages are calculated by multiplying the hours worked by their hourly wage.
What is an hourly rate?
An hourly rate is the amount of money an employee earns for each hour of work. This rate is agreed upon during the hiring process and must meet or exceed the federal, state, or local minimum wage requirements. The current federal minimum wage is $7.25 an hour, but many states and local jurisdictions have higher minimum wage rates.
How to calculate wages
To calculate an hourly employee's wages:
- Determine the total number of hours they worked during the pay period.
- Multiply their total hours by the employee's hourly rate.
- Calculate overtime pay (if applicable) by multiplying overtime hours by 1.5 times the hourly rate and adding this to the total regular pay.
When do hourly employees get paid?
Hourly employees typically receive their paychecks on a regular schedule, such as weekly, bi-weekly, or monthly. The specific pay schedule is determined by the employer and should be communicated to the employee at the time of hiring.
Annual salary vs. hourly pay
Hourly workers are paid for the actual hours they work, providing flexibility but potentially leading to variable income.
On the other hand, salaried employees receive a fixed amount of pay annually, divided into regular pay periods. Their compensation is not directly tied to hours worked.
How many hours can hourly employees work?
Hourly employees can work varying hours depending on their agreement with the employer. However, they are generally subject to overtime pay for any hours worked beyond the typical 40 in a full-time employee’s workweek, as mandated by the Fair Labor Standards Act (FLSA).
There are no federal regulations capping how many overtime hours employees can work in the US, but some states and local jurisdictions place upper limitations on hours or mandate rest days, so knowing local laws where your employees are based is crucial.
How do you track hourly employees’ hours?
Accurately tracking hourly employees' hours is how employers make sure they correctly calculate wages and comply with labor laws. Here are common methods for tracking hours:
- Time clocks: Workers punch in and out using physical time cards, which record the exact times the employee works.
- Manual timesheets: Employees use forms to record their start and end times, as well as breaks. These can be submitted daily or weekly.
- Digital time tracking systems: Software solutions allow employees to log their hours via computers, mobile devices, or dedicated kiosks.
- Biometric systems: Advanced systems can use fingerprint or facial recognition to clock workers in and out, reducing the risk of time fraud.
- Project management tools: For remote or project-based work, tools like Asana, Trello, or Basecamp can track time spent on specific tasks or projects.
Do hourly employees get benefits?
Whether benefits are provided for hourly employees varies by employer and job type.
While some hourly workers may receive employee benefits like health insurance, paid time off, life insurance, and retirement plans, others may not be eligible for these perks. For the most part, it’s up to employers to decide on their benefits packages. But they also must comply with all relevant labor and employment laws relating to statutory benefits—for example, the Affordable Care Act, which mandates that employers with 50 or more full-time or full-time equivalent employees must provide healthcare to their eligible workers.
Exempt vs. non-exempt employees
When talking about hourly employees, another factor to consider is exempt and non-exempt employees.
What is an exempt employee?
An exempt employee is a worker who is exempt from the minimum wage and overtime pay requirements of the FLSA. Most often, these are salaried workers in executive, administrative, professional, or certain computer-related roles. Exempt employees are not entitled to overtime pay regardless of the number of hours worked.
What is a non-exempt employee?
A non-exempt employee is a worker who is covered by the FLSA's overtime pay provisions. They are entitled to minimum wage and overtime pay for hours worked beyond 40 in a workweek. Most employees who are paid on an hourly basis rather than a salary basis are classified as non-exempt.
Can hourly employees earn overtime?
Usually, yes. Hourly employees are generally considered non-exempt and are eligible to earn overtime pay.
What FLSA rules apply to hourly employees?
The Fair Labor Standards Act (FLSA) is a federal law that establishes several key rules for hourly employees, including:
- Minimum wage: Employers must pay hourly employees at least the federal minimum wage, or the local or state minimum wage if it is higher.
- Overtime: Non-exempt hourly employees must receive overtime pay at one and a half times their regular hourly pay rate for hours worked over 40 in a workweek.
- Recordkeeping: Employers must maintain accurate records of hours worked and wages paid to hourly employees.
- Child labor protections: The FLSA includes provisions to protect workers under the age of 18 by limiting the types of work they can perform and the hours they can work.
What other laws apply to hourly employees?
In addition to the FLSA, several other laws and regulations apply to hourly employees, including:
- Family and Medical Leave Act (FMLA): Provides eligible employees with up to 12 weeks of unpaid, job-protected leave per year for certain family and medical reasons.
- Occupational Safety and Health Act (OSHA): Ensures safe and healthy working conditions by setting and enforcing standards and providing training, outreach, education, and assistance.
- Equal Employment Opportunity (EEO) laws: Prohibit discrimination based on race, color, religion, sex, national origin, age, disability, or genetic information.
- Americans with Disabilities Act (ADA): Prohibits discrimination against individuals with disabilities and requires reasonable accommodations in the workplace.
- State and local labor and employment laws: Various state and local laws may provide additional protections and benefits, such as higher minimum wages, paid sick leave, and predictive scheduling requirements.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.