What is salary pay?

Salary pay refers to a fixed amount of compensation paid to employees on a regular basis, typically expressed as an annual amount, regardless of the number of hours worked or the fluctuations in their weekly workload. Unlike hourly pay, where compensation is directly tied to the hours worked, salary pay provides employees with a predictable income, paid either weekly, biweekly, semi-monthly, or monthly. This system is commonly used for managerial, professional, and administrative roles where employees are expected to complete a set of tasks and responsibilities, rather than focusing strictly on time worked.

Salary pay offers consistency for both employees and employers, making it easier for employees to manage their finances while helping employers avoid the complexities of hourly wages and timekeeping. Homebase’s payroll software can help businesses manage salaried employees, track work hours, and ensure accurate compensation without the need for constant time tracking.

Why salary pay matters for employers

Salary pay is beneficial for both employers and employees. Here’s why it’s an important compensation model:

1. Predictable compensation

For employers, offering salary pay helps streamline payroll processes, providing a fixed budget for labor costs. It reduces the need to calculate pay based on fluctuating hours, and makes budgeting easier for the business. Employees benefit from the stability and predictability of their income, which makes financial planning and personal budgeting simpler.

2. Employee retention

Salary pay is often associated with higher-level positions that come with additional responsibilities and expectations. By offering competitive salary packages, employers can attract and retain talented individuals who prefer the stability and structure of a fixed income, especially for roles with flexible or non-standard working hours.

3. Simplified payroll administration

For businesses that have employees working in roles with varying hours, salary pay simplifies payroll administration. Employers don’t need to track every hour worked, which reduces administrative work, potential errors, and compliance risks. This is particularly useful for positions that require ongoing work and focus, such as project management or executive roles.

4. Encourages performance over hours worked

Salary pay allows employees to focus on fulfilling their responsibilities rather than counting hours. This shift in focus helps to align their efforts with organizational goals and objectives, which can lead to improved productivity and overall company performance.

How salary pay works

Salary pay works by compensating employees with a set amount, typically paid in equal installments over a pay period. Here’s how it works in detail:

1. Annual salary

The most common form of salary pay is an annual amount, which is divided by the number of pay periods (e.g., weekly, biweekly, or monthly). For example, if an employee has an annual salary of $60,000 and is paid monthly, they will receive $5,000 each month, regardless of the number of hours worked.

2. Salary for exempt employees

Most salaried employees are considered "exempt" from overtime pay under the Fair Labor Standards Act (FLSA), meaning they do not receive additional pay for hours worked beyond 40 hours per week. This is typically the case for professional, executive, or administrative roles. However, the exemption status depends on meeting certain criteria related to job duties and salary levels.

3. Salary for non-exempt employees

Some salaried employees are classified as "non-exempt" and are entitled to overtime pay for hours worked over 40 hours per week. In such cases, the salaried employees are still paid a fixed amount, but they receive overtime pay for any hours worked beyond the regular workweek. For instance, if a non-exempt salaried employee works 50 hours in a week, they are paid their standard salary plus additional overtime pay for the extra 10 hours.

4. Benefits and bonuses

In addition to the base salary, salaried employees may receive additional compensation in the form of bonuses, incentives, or benefits. For example, annual bonuses, health insurance, retirement contributions, and other perks may be offered as part of the total compensation package. These add value to the overall salary package and can be a key differentiator in attracting and retaining employees.

Legal and compliance considerations

While salary pay offers flexibility and predictability, it must be managed in compliance with both federal and state laws. Below are key considerations for employers:

• Fair Labor Standards Act (FLSA): The FLSA sets the criteria for exempt and non-exempt employees. Exempt employees are typically not entitled to overtime pay, while non-exempt salaried employees must receive overtime for hours worked beyond 40 hours in a week. Employers must ensure that salaried employees meet the required criteria for exemption, including job duties and minimum salary thresholds.
  
  
• Minimum salary requirements: Under the FLSA, exempt employees must meet certain salary thresholds to qualify for exemption. As of 2020, the minimum salary for an exempt employee is $684 per week, or $35,568 annually. States may have their own higher salary requirements, so employers should stay informed of local regulations.
  
  
• Overtime pay: For salaried employees classified as non-exempt, employers must calculate overtime pay at 1.5 times the employee's regular hourly rate for hours worked over 40 hours in a workweek. It’s important to ensure compliance with overtime regulations to avoid legal complications and penalties.
  
  
• Salary deductions: Employers must follow legal guidelines when deducting from an employee’s salary. Deductions may include taxes, retirement contributions, and insurance premiums, but deductions for partial day absences are generally not allowed under salary pay unless the employee has sufficient leave balances to cover the absence.
  

Real-world example

Consider a project manager at a software development company who is paid an annual salary of $90,000. The manager is exempt from overtime pay because their role involves significant decision-making responsibilities, and their salary exceeds the FLSA threshold. The company pays the manager a fixed amount of $7,500 per month, regardless of the number of hours worked. If the manager works extra hours to meet project deadlines, they are not entitled to overtime pay.

Additionally, the manager receives performance-based bonuses for achieving specific project milestones, which can vary each year. In this example, salary pay ensures the manager receives predictable compensation while incentivizing strong performance through bonuses.

Common mistakes to avoid

1. Misclassifying exempt vs. non-exempt employees
Employers must ensure that salaried employees meet the criteria for exemption from overtime under the FLSA. Misclassifying non-exempt employees as exempt could result in unpaid overtime claims and penalties.

2. Failing to track overtime for non-exempt salaried employees
If an employee is non-exempt and works overtime, the employer is required to pay them overtime. Failure to track and compensate overtime accurately can result in legal and financial consequences.

3. Not updating salary pay for inflation or market standards
Over time, salary levels may need to be adjusted to remain competitive in the market or to account for inflation. Employers should regularly review salary offerings to ensure they remain attractive to top talent and maintain employee satisfaction.

4. Inconsistent salary adjustments
Employers should ensure that salary adjustments, whether for performance or cost-of-living increases, are applied consistently and transparently across the organization. Failing to do so can lead to employee dissatisfaction and a lack of trust.

How Homebase helps with salary pay

Homebase simplifies salary pay management by automating payroll calculations, ensuring that salaried employees are paid accurately and on time. You can track time worked, calculate payroll, and ensure compliance with overtime laws for non-exempt salaried employees, all within the same platform.

With Homebase, you can:

• Automate salary pay for consistent, predictable compensation
  
  
• Track hours worked to ensure compliance with overtime rules for non-exempt employees
  
  
• Manage salary adjustments, bonuses, and benefits seamlessly
  
  
• Ensure payroll compliance with state and federal regulations
  

Explore Homebase payroll to automate salary pay, simplify payroll management, and ensure your employees are compensated accurately and on time.