What is hourly pay?

Hourly pay refers to the compensation an employee receives based on the number of hours they work, rather than a fixed salary. Employees who are paid hourly are typically compensated for every hour worked during their scheduled shifts, with pay rates established at an agreed-upon rate per hour. Hourly workers are often entitled to overtime pay for hours worked beyond the standard workweek, typically over 40 hours in the U.S. under the Fair Labor Standards Act (FLSA).

Hourly pay is most commonly used in industries like retail, hospitality, manufacturing, and construction, where work schedules can fluctuate based on demand, seasonality, or project needs. For business owners, understanding how to structure and manage hourly pay is crucial to maintaining compliance with labor laws and ensuring fair compensation.

Why hourly pay matters for employers

Hourly pay isn’t just a method of compensating employees—it directly impacts both operational efficiency and financial management. Here’s why hourly pay is an important aspect of your business operations:

1. Flexibility in staffing

Hourly pay allows businesses to adjust staffing levels based on demand. Employers can schedule more workers during peak hours and reduce shifts during slower periods, helping to optimize labor costs.

2. Fair compensation for work performed

Hourly pay ensures employees are compensated for the exact amount of time they work, which can be especially important in industries where employees may need to work overtime or have variable shifts. This pay structure offers transparency and accountability in compensation.

3. Compliance with wage laws

Hourly pay is governed by laws such as the FLSA, which mandates that non-exempt hourly workers must receive overtime pay for any hours worked beyond 40 hours per week. Employers must also be sure that they are not misclassifying employees as salaried when they should be hourly, to avoid costly legal repercussions.

4. Tracking and budgeting

With hourly pay, it’s easier to track labor costs. Business owners can directly link employee hours to wages, making it simpler to assess labor expenses against business revenue.

Legal and compliance considerations

Hourly workers are subject to some labor regulations. Employers must ensure compliance with both federal and state-level wage laws to avoid costly fines and lawsuits. Key considerations include:

• Minimum wage: Under the FLSA, employers must pay non-exempt hourly workers at least the federal minimum wage (currently $7.25 per hour), though many states and municipalities have set higher minimum wages. Employers must stay up-to-date on the applicable minimum wage laws in their location.
  
  
• Overtime pay: Hourly workers who work more than 40 hours in a week are entitled to overtime pay, which is typically 1.5 times their regular hourly rate. Overtime rules vary by state, and certain exemptions exist, so employers must ensure they’re classifying employees correctly to comply with these rules.
  
  
• Recordkeeping: Employers must maintain accurate records of hours worked, wages paid, and any deductions taken. Inaccurate or incomplete records can result in fines or disputes during audits or legal investigations.
  
  
• Breaks and meal periods: In some states, employers are required to offer breaks or meal periods during shifts longer than a certain length (e.g., 4 hours). Employers must familiarize themselves with state-specific laws regarding breaks for hourly employees.

Common mistakes to avoid

1. Misclassifying employees

One of the biggest mistakes employers make is misclassifying employees as salaried or exempt when they should be hourly and eligible for overtime. This can lead to back pay claims, lawsuits, and regulatory penalties. Always ensure employees are classified correctly according to their job duties.

2. Failing to track hours accurately

Inaccurate time tracking can lead to errors in payroll, such as underpayment or overpayment. Employers must ensure their employees are logging their hours properly and that supervisors are reviewing and approving them promptly.

3. Ignoring local wage laws

Minimum wage laws vary by state and local jurisdiction, and failing to comply with the highest applicable rate can result in fines and legal trouble. Business owners must be diligent about keeping track of changes in local wage laws to ensure compliance.

4. Not paying for overtime correctly

Employers sometimes forget to apply overtime rates for employees who work beyond the 40-hour workweek. This mistake is particularly common during busy seasons or when schedules fluctuate. Ensure overtime is calculated and paid correctly to avoid penalties and legal disputes.

5. Not providing adequate breaks

Some states have specific regulations requiring employers to offer breaks or meal periods for employees working a certain number of hours. Failing to provide these breaks can result in fines and violations of labor laws.

How Homebase simplifies hourly pay management

Homebase streamlines hourly pay tracking by providing businesses with an integrated system to track employee hours, calculate wages, and manage overtime. Whether you’re managing part-time retail workers or full-time hourly employees in construction, Homebase automates the entire process and ensures accurate pay every time.

With Homebase, you can:

• Automatically track employee hours with built-in time clocks
  
  
• Set up overtime rules and automatically calculate overtime pay
  
  
• Customize pay rates for different employees or roles
  
  
• Run payroll with just a few clicks and ensure tax and overtime compliance
  
  
• Access detailed reports for accurate recordkeeping and audits
  

Explore Homebase Payroll to make managing hourly pay easy, compliant, and accurate—so you can focus on growing your business.