Whether looking for a new job or getting a promotion, compensation is often the deciding factor for many. Some employees think a fixed salary is better, while others prefer the hourly-basis system.
Has your employer recently asked you to shift from salary to hourly? Before you sign the contract and agree to the terms and conditions of the new pay system, it’s important to understand everything about it.
For most employees, the only difference between being salaried and working on an hourly basis is more money and flexibility, as you can work more hours. But there are some other significant differences as well.
This article will help you understand the advantages and disadvantages of both systems and why you should seek lawyer advice before agreeing to the hourly pay system.
What’s the Difference Between Being on a Salary or Paid on an Hourly Basis?
The main difference between being paid on a salary basis and an hourly basis is how an employee’s pay is calculated. It also includes a different contract and a reduction in some benefits varying from employer to employer.
Below we have explained the difference between being a salaried and an hourly employee.
What is a Salary?
Salary is a set amount of pay that employees receive for a specified period of time, typically a year or a month, regardless of the number of hours they work. Such employees are often exempt from overtime pay. The amount and frequency of the salary are usually part of the employee’s contract.
Each salary payment is fixed, for example, you’ll receive $4,000 a month before taxes with a gross salary of $48,000 annually.
What is an Hourly Rate?
Employees working on an hourly basis are paid based on the number of hours they work at an agreed-upon hourly rate. They are also eligible for overtime pay for any hours worked over 40 in a workweek.
If an employer wants hourly employees to work for more hours, they need to pay them more for the extra hours they have worked.
Below is a detailed comparison of both salary and hourly pay, including pay calculation, overtime, and more:
The pay for a salaried employee is calculated by multiplying the salary amount by the number of pay periods in a year, typically 26 or 52.
For example, if a salaried employee makes $50,000 per year and is paid bi-weekly, their bi-weekly paycheck would be $1,923.08.
The pay of an employee on an hourly basis is calculated by multiplying the per hour rate by the number of hours worked in a pay period.
For example, if employees make $20 per hour and work 40 hours a week, their weekly pay would be $800.
Employees working on a fixed salary are often exempted from overtime pay, meaning they do not receive additional pay for hours worked over a certain amount.
Such employees are eligible for overtime pay for any hours worked over 40 in a workweek, which is typically calculated at 1.5 times the regular hourly rate in New York.
If an hourly employee makes $20 per hour and works 45 hours a week, they would receive 5 hours of overtime pay at a rate of $30 per hour, bringing their weekly pay to $900.
Most employers offer benefits to salaried employees such as health insurance, paid time off, and retirement benefits in addition to their fixed payment amount. These benefits can vary from employer to employer and the designation of the employee.
Hourly employees may receive some benefits, but they are less likely to receive a comprehensive package of benefits compared to salaried employees. Sometimes, employers also refer to hourly employees as independent contractors, which reduces the benefits they receive.
These are the most considerable differences between being a salary and being an hourly employee you should take into account when switching from salary to hourly basis or vice versa.
Why Does Being on a Salary or Hourly Basis Matter?
In the end, you are being paid, so why does the difference between salary and hourly basis matter? Well, what you choose from these two will substantially affect your career growth and development. Additionally, it has a huge impact on the financial outcome of the job.
Below we’ve mentioned the pros and cons of both salary and hourly basis to help you understand why it matters:
The Pros of Working on a Salary
A consistent pay amount is one of the most significant benefits of working on a salary. Employees receive a fixed amount of pay each pay period, which provides financial stability and predictability. It also allows employees to plan their finances more accurately and reduces the stress of fluctuating pay.
A salary position may offer greater job security, as employees are often not subject to layoffs or reductions in hours due to economic conditions.
This can provide employees with a sense of stability and peace of mind, especially during uncertain economic times.
Salary employees are often eligible for a comprehensive benefits package, which may include health insurance, paid time off, and retirement benefits. It is an addition to the base salary, providing a more secure financial situation.
Being in a salaried position provides opportunities for career advancement and professional development to the employees. They may have the opportunity to take on additional responsibilities, gain new skills, and advance their careers within the company.
Cons of Working on a Salary
Inflexible Working Hours
Some employers expect salaried employees to work specific hours and may not offer the flexibility to adjust their schedule as needed. It can be particularly challenging for employees with family or personal commitments who need the flexibility to adjust their work schedule.
Salaried employees are usually not eligible for overtime pay, which means they do not receive additional pay for working additional hours. It can be a drawback for employees willing to work extra hours for extra pay.
There may be less incentive for salary employees to work additional hours, as they are not paid any extra for doing so. Thus, it can result in less productivity and motivation for employees who may feel that their efforts are not rewarded.
Limited Pay Growth
Employees working for a salary may not be able to increase their pay as quickly as hourly employees, as pay increases are often tied to promotions or annual raises. Employees looking for financial advancement in their careers often find it a downside.
Pros of Working on an Hourly Basis
Flexible Working Hours
Hourly employees often have more flexibility to adjust their work schedule, as they are not required to work specific hours. It is particularly beneficial for employees with family or personal commitments who need the ability to adjust their schedules.
These employees are also eligible for overtime pay, which means they receive additional pay for working additional hours. Employees willing to work extra hours can receive extra pay for the additional hours they have dedicated to work.
Pay for Performance
Most employers in New York pay hourly employees based on the number of hours they work, which provides an incentive for employees to be productive and efficient. Furthermore, it helps enhance the motivation and performance of the employees.
Opportunity to Increase in Pay
Hourly employees may be able to increase their pay more quickly, as they are often paid based on the number of hours they work.
Cons of Working on an Hourly Basis
Lack of Consistent Pay
Sometimes, employees working at an hourly rate experience fluctuations in their pay, as the number of hours they work can vary from week to week. It can cause financial instability and may also lead to unpredictability.
Poor Job Security
Hourly employees are also prone to layoffs or reductions in hours due to bad economic conditions, which may lead to job insecurity.
Limited Career Advancement
Usually, hourly positions do not provide the career advancement and professional development opportunities employees long for. And most hourly-rate jobs are entry-level positions.
No Added Benefits
Since most employers classify hourly employees as independent contractors, they are often ineligible for a comprehensive benefits package, which may include health insurance, paid time off, and retirement benefits.
Both salary and hourly basis have pros and cons that the employee must weigh before choosing one. If your employer has proposed you switch to an hourly basis from being on a salary, you must consider all the positives and negatives.
If you are still finding it hard, consulting a professional employment lawyer in New York can help you choose what’s better for you. Levine & Blit offers affordable employment law services, including reviewing your existing and new employment contracts. We even explain what has changed and how the new changes will affect your employment.
Call us at 866-351-0116 to speak to our labor law experts and get your contract reviewed.
What Happens When Someone is Taken Off Salary and Put on an Hourly Basis?
When an employee is taken off salary and put on an hourly basis, the terms of their compensation change from a set annual salary to an hourly wage for the hours they work.
This means that the employee will be paid for the exact number of hours they work, rather than receiving a fixed salary regardless of the number of hours they work in a week.
Here’s what happens when a salary-exempt employee becomes a non-exempt hourly one:
Change to Benefits
Employment benefits like paid-off time, disability or life insurance, and vacation accrual may change based on the hourly and salaried status. Depending on the employer’s policies, the change can benefit or harm employees.
For example, employees working on a salary may have more vacation accrual and paid-off time as compared to employees working on an hourly basis.
When your employer puts you on an hourly basis, they reclassify the benefits you were receiving before and will continue to receive as an hourly employee.
Loss of a Working Schedule
Since salaried employees need to work on a fixed time, they get accustomed to their schedule. However, most employers offer flexible working hours to employees working on an hourly basis.
When an employee switches from salary to hourly basis, they often find it challenging to adjust their schedule according to the work schedule provided by the employer.
For example, if an employee previously worked from 9-6 on a salary, they can find it hard to readjust their schedule when working on an hourly basis.
Modifications in the Contract
In most cases, employers terminate the previous agreement when putting an employee from salary to hourly basis. This means the employee has to enter into a new contract that’s specifically designed keeping in mind the latest terms and conditions.
These modifications in the contract can also classify the employee as an independent contractor after they agree to work hourly. Therefore, it gets important for the employees to review their contracts again to ensure the policies aren’t violating their rights or the laws.
The Legal Implications
Putting an employee from salary to hourly doesn’t just affect the individual in question, but it is also challenging for the employers. When reclassifying employees, employers must be careful about the process to ensure everything is well-documented.
Moreover, some New York and federal laws require the employer to stay compliant with the FLSA (Fair Labor Standards Act), and they must show the US. Department of Labor’s Wage and Hour Division, when the changes were made, and why.
Switching employees back and forth between hourly and salary can create legal issues for the employers and the employees, so Syracuse employment lawyers do not advise frequent transitioning.
Have You Been Reduced from Salary to Hourly Pay? What Are Your Options?
New York is an at-will state that gives freedom to employers, but that doesn’t mean you cannot question your employer for making any changes to your employment.
If your employer has shifted you from salary to hourly pay, you can take the following steps:
Review the Change
Make sure you understand the details of the change and how it will affect your pay. Ask your employer to provide a written explanation of the new pay structure, including your hourly rate and any employee benefits you will receive.
Check if it is Legal
In some cases, changing an employee’s compensation from salary to hourly may not be in compliance with labor and employment law. You should research the laws in your jurisdiction to determine if the change is legal. Also, some employers offer severance agreements, so make sure it complies with the law before accepting anything.
Negotiate the Rate
If you believe the hourly rate offered is too low, you may try to negotiate a higher rate. Consider your skills, experience, and the market rate for similar positions.
Consider Other Options
If you are unhappy with the change, you may consider seeking a new job offering a salary or negotiating a better compensation package with your current employer.
Document the Change
Make sure you have a record of the change and any negotiations or agreements made with your employer. It will help in the event of employment law matters.
Seek Advice From Employment Lawyers, Syracuse, NY
The change in your contracts and compensation system can be technical and difficult to understand, so it’s better to seek legal advice from an expert.
The legal counsel of a law firm will review the new contract to ensure your rights are protected and you are receiving all the benefits an employee working on an hourly basis should receive, as per the employment law.
If the employer has violated laws or your rights, the attorneys will help you file a complaint while representing you in the federal and state courts. Here’s how you can find a labor lawyer in New York.
Switching From Salary to Hourly? Contact Levine & Blit for Expert Legal Advice
It’s important to speak to experienced attorneys when switching from salary to hourly or vice versa. The employment attorneys will help you understand how the changes will affect your employment, and there are many other reasons why you may need labor lawyers when changing your compensation system.
At Levine & Blit, our employment law team thoroughly reviews your old and new contracts to determine the changes and then explains them to you. We can even help you negotiate with the employer if you aren’t happy with the terms proposed in the new hourly rate agreement.
Call us at 866-351-0116 for a free consultation, and book an appointment with our employment lawyer in New York.