What is an Hourly Employee?

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Which employees are considered hourly employees? Unlike a salaried employee, who is paid a flat salary regardless of how many hours worked during a workweek, an hourly employee is paid an hourly wage for each hour worked.

Hourly Worker Definition

Workers who are paid on an hourly basis are required to be paid, at the least, minimum wage. Minimum wage rates vary from state to state and employers are required to pay either the state or federal minimum wage, whichever is higher.

Some cities and counties have also set higher minimum wages for their localities, but as of 2017, 27 states had passed laws prohibiting local governments from setting higher wages. See your state Department of Labor for details about the minimum wage in your area.

An hourly employee is paid for the number of hours they work per week up to 40 hours at a determined rate. Per federal law, hourly workers are entitled to overtime pay for hours worked over 40 hours per workweek.

Pay for Hours Worked

Employees paid on an hourly basis are paid for actual hours worked. Unlike many salaried employees, hours per week may fluctuate based on a worker’s weekly schedule or rotated shifts, and therefore wages can vary for that employee from week to week.

Depending on company policy, hourly workers may be entitled to employee benefits including vacation, sick time, insurance and health care for themselves and their families.

In some cases, these benefits and the employer’s contribution may be less than those offered to full-time employees.

Some businesses designate qualifying periods anywhere from 30 days to three months before offering benefit packages in order to make sure that the employee is a good fit for the company and will stay long enough to make the organization’s investment worthwhile.

These qualifying periods and temp-to-perm hiring processes are becoming increasingly popular as employers want to be sure that the employee will adapt to the fluctuating hourly schedule before offering benefit packages.

Exempt Employees

Exempt employees are not entitled to the enforced provisions of the Federal Labor Standards Act (FLSA) like overtime pay.

A worker is an exempt employee if they are paid at least $455 per week ($23,600/year) or are paid on a salary basis. There are also certain tests that apply to executive and administrative employees, as well as workers in certain professions.

If workers meet these tests, they’re said to be “exempt,” meaning that overtime provisions don’t apply to them. Typically, exempt employees will not earn any extra payment for hours worked over a normal workweek.

Some employers, however, will still pay exempt employees straight pay or some compensation for additional hours, but they must remain compliant with laws related to such compensation. Examples of additional compensation can include bonuses, flat sums, additional paid or unpaid time off, straight pay, or time and a half.

Additionally, an employer can determine a normal workweek for his or her own company, and not necessarily the 40-hour workweek expected of non-exempt employees.

For instance, a financial company may determine a normal workweek to be 60 hours, while a department store may only require 30 hours.

Nonexempt Employees

Nonexempt employees must be paid both minimum wage and overtime pay for any hours worked beyond 40 hours in any given workweek. According to the FLSA, nonexempt employees are entitled to time and one-half their hourly wage for every hour of overtime.

The majority of workers working an hourly wage are considered nonexempt employees.

Most nonexempt employees in the U.S. are offered employment “at will,” meaning that both they and the employer can terminate the professional relationship at any time for any reason, so long as it is not discriminatory in nature.

Calculating Hourly Pay

If you’ve ever received a paycheck before, you know that your take-home pay is considerably less than the total of your hourly wage times hours worked.

Employers deduct for FICA (Federal Insurance Coverage Act, e.g. Medicare and Social Security), as well as other federal, local and state taxes, and any employee contributions to health care and retirement programs.

It’s hard to make a budget when you don’t know how much money you’ll really be earning. These free paycheck calculators can help you estimate your actual take-home pay. Paycheck calculators can also be helpful when you’re evaluating job offers.

More About Pay: What is the Different Between Hourly and Salary Employees? |  Exempt vs. Non-Exempt Employees | How Much Do I Get Paid for Overtime?