Your company probably has both hourly and salaried employees, and all of them are paid according to the pay frequency schedule that you determine best suits your company's needs. This is generally weekly, biweekly, semimonthly and in a few cases, monthly. Many professional and administrative jobs quote an annual salary, meaning their annual base salary is how you state their earnings, instead of stating how much the employee earns per hour. Therefore, when you refer to employees who are paid annually, it typically means they are salaried employees and not that they are paid just once a year.
Salaried Employees Versus Hourly Employees
The U.S. Department of Labor, Wage and Hour Division enforces the Fair Labor Standards Act. The FLSA contains two primary classifications of employees: exempt and non-exempt. Exempt means the employee doesn't receive overtime pay for putting in more than 40 hours each week. To meet the test for an exempt employee, they must be paid at least $455 a week or paid an annual base salary of $23,660. In addition, they must perform duties that require the use of discretion and independent judgment, such as managing others, making hiring recommendations and similar duties that support business operations.
Before you decide whether to classify a position in your company as exempt or non-exempt, check the WHD requirements because there are specific rules for certain professions, as well as exceptions to those rules. Non-exempt employees, on the other hand, are not exempt from the overtime rules, and whenever they work more than 40 hours, you must pay them at time and one-half their hourly rate for every hour beyond those 40 hours.
Challenges and Annual Pay Employees
You should rely on your salaried employees to complete their work, regardless of how long it takes. This means if you have a salaried employee – workers who receive their pay expressed as annual pay, and not an hourly rate – that you expect that employee to work more than 40 hours in a week, if necessary. For many employees paid annually, there are certain benefits to being salaried. Namely, the employee doesn't have to punch a time clock to prove he's at work. There's also some flexibility throughout the workday, such as the ability to extend lunch breaks without any explanation. But if you have salaried employees who are routinely putting in an exorbitant number of hours, it's wise to look at their workload and decide whether you need two employees instead of just one doing that job.
Job Offer and Annual Salary
When you bring a new employee onboard, a written job offer is the best way to communicate the position, department and reporting relationships, as well as the working hours and annual salary. If you provide your workers with year-end or performance-based bonuses, indicate the annual base salary and describe the bonus as discretionary. You're not required to pay bonuses, but if that's your company practice, you can mention it in the written offer.
For example, the job offer letter might state, "We are pleased to extend you an offer to become a member of the ABC Company family in the Charlotte, North Carolina office. This job offer is for the full-time Accountant II position, and you will report to the chief financial officer, Ms. Jane Doe. The start date we discussed during your final interview is December 1, 2018. Your annual base salary is $115,000 and you are considered an exempt employee. Your annual pay includes a comprehensive benefits package. You will receive a separate communication from our HR department about benefits, which include health insurance coverage, the company's 401(k) plan, vacation, sick leave and paid holidays. Please review this letter and send your acceptance in writing via email. If you have questions, please feel free to give me a call."
- U.S. Department of Labor, Wage and Hour Division: Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer and Outside Sales Employees Under the Fair Labor Standards Act (FLSA)
- Paychex: Exempt vs. Non-Exempt Employees: What Are the Differences?
- U.S. Department of Labor, Wage and Hour Division: Fact Sheet #17C: Exemption for Administrative Employees Under the Fair Labor Standards Act (FLSA)
- Forbes: 10 Terms to Look For in Job Offer Letters