Paying a Salary or by the Hour: What’s the Difference?

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Credit: Thinkstock

Credit: Thinkstock

What’s the difference between paying a minimum hourly wage and a salary? 

It basically comes down to this: an “hourly” or “exempt” employee is paid no less than the Federal minimum of $7.25 (states can set a higher rate; Florida, for example pays $8.05), and is entitled to overtime (OT) under the law at time and a half of the base rate for each hour worked over 40 hours.

“But there are stipulations,” said Mary Thomas, president of Equistaff.com. “The employee must log in at less than $455 per week or $23,600 per year in order to be eligible.”

An hourly worker is expected to work under supervision, which means not being able to make decisions or direct the work of others. The duties performed within the work period may vary--in the horse industry that could include mucking stalls, holding horses for the farrier or vet, yard work, etc.

“But, if a client asks for help at the last minute and the meter times out, you may be faced with overtime costs,” cited Thomas.

On the other hand, she said that if an employee supervises others (at least two regular, full-time employees) and is involved in key operating decisions--hiring, firing, assignments, promotions--then that employee is considered “management,” i.e., a barn manager or trainer, for which he or she should be “salaried” or “exempt.”

However, she noted that having a title doesn’t necessarily mean someone qualifies as a salaried eployee. In order to do so, she said wages must be equal to or exceed $455 per week, which are paid on an annual basis sans overtime (that’s not to say that bonuses can’t be negotiated), and the employee must be available to meet the demands of the job. And while interpreting the duties under the Federal Fair Labor Standards Act (FLSA) allows for some wiggle room, you shouldn't work someone 60 hours a week under salary and base the salary on 40 hours a week.

You should talk to your accountant and/or your attorney to ensure that you are paying your employees correctly.

For more information on this topic, visit the US Department of Labor website.