Deciding on whether employees should be paid salary or hourly is a decision that HR managers and business owners in Ireland struggle with constantly. There are some federal regulations in place in specific industries especially in Ireland where the standard has to be upheld, and there is no option.
However, there are still plenty of others that get to make a choice. The benefits for the business owner and the employee both need to be weighed out when considering salaried vs. hourly. First, understand what the difference is between the two and what each holds as far as benefits go.
Exempt vs Non-Exempt Employee Differences
You could be a new business owner or someone that is fresh to the human resources department having a hard time figuring out what the difference is between exempt and non-exempt employees. Each relates to salaried vs. hourly pay in various ways.
Salaried vs. Hourly
When a person is on salary, they get the same amount of pay each year no matter how many hours they put in. They are considered to be exempt because they do not qualify for any of the overtime laws. Bonuses and other benefits may be given by the business owner to the salaried employee if they choose to offer them. However, they are not required to provide them anything additional for working more than a 40-hour week.
Hourly employees are non-exempt and get paid based on the number of hours that they work. Regulations put in place by the federal government require them to be paid at least minimum wage up to 40 hours. Anything over those 40 hours they have to be paid overtime based on what the state law is. In most cases that is one and a half times their standard pay rate.
Labour vs. Professional
What kind of pay a person receives is often decided on what type of work they are doing. Managers, supervisors, and professional designations in the ‘white collar’ industry are most often paid salary while labourer or ‘blue collar’ workers generally are paid hourly.
Depending on the industry, there is sometimes a mixture of both hourly and salaried employees working for the same business. A foreman for a construction company in Ireland might get paid salary while the workers are paid an hourly rate.
Benefits of Salaried vs. Hourly
You may not have an option as the business owner on how you pay your employees because of the laws in place for your industry. However, if you do have a choice, you should understand the drawbacks and benefits of each option.
Why Timekeeping is Simpler
To calculate an hourly employee’s salary, take the amount of money they make per hour by the number of hours they work and add in any overtime. This is their yearly rate, and it can be used to compare what you would pay the same employee if he or she were earning a salary.
A salaried employee’s hourly rate can be figured by taking their annual pay and dividing it by 2080 hours which is the typical amount of hours for a work year.
Both of these types of pay have to be tracked. The hourly employees have to be reviewed regularly due to payroll. If there are no added perks being given to the salaried employee, the information regarding their pay is only kept for a record.
There are different reasons why an employee or an employer would prefer hourly over salary. In most instances for long-term employees, they will fall under the salary option. The idea is they see their position more as a career than just a job, so they tend to engage stronger in the work they are doing. A salaried employee can be given more incentives and benefits to stay. They will work the overtime to finish the job rather than just to pick up the overtime. The result is a stronger built company.
Budgets Become Easier to Set
Monthly and yearly budgets are eaten up in large part by payroll. With salaried employees, you can have a much clearer picture of what amount of money is going to be spent on payroll. Any changes to the number are going to be because of bonuses that you decide to give on your own versus surprise expenses due to overtime hours worked.
It’s much harder to anticipate a budget for hourly workers that aren’t steady in the amount of time they work. That’s especially true when they work overtime that isn’t expected. There may have to be policies put in place to keep employees from working over or prohibit it all together to stay within your budget.
Take into consideration each of the benefits of paying your employees hourly vs. salary before making a final decision. In the end, it should be a choice that is going to benefit your business as well as your valued team of workers.