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.

There are differences between classifications of employees based upon the type of work they do and their eligibility for overtime pay. Hourly workers are eligible for overtime pay and are considered non-exempt from federal and state overtime pay laws.

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 some states have passed laws prohibiting local governments from setting higher hourly rates.

See your state department of labor website 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. Hourly workers are considered non-exempt from overtime pay regulations.

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, life 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 salaried employees.

Some businesses designate qualifying periods anywhere from thirty days to three months before offering benefits packages 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.

Overtime Pay for Hourly Employees

There are certain tests to determine exempt versus non-exempt status that apply to executive, administrative, and professional employees, as well as workers in certain positions, including computer and outside sales jobs.

If workers meet these tests and the income criteria, 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 standard workweek.

What’s more, there are some states with regulations governing overtime pay. In locations where an employee is subject to both state and federal overtime laws, overtime is paid according to the standard that will provide the higher amount of pay. Some states like California and New York have even higher thresholds of pay for jobs to be considered as exempt. 

Some employers, however, may voluntarily pay exempt employees straight pay or some compensation for additional hours, but they must remain compliant with laws related to these payments. 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 standard 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 establish a standard workweek to be 60 hours for exempt employees, while a department store may only require 30 hours.

Non-Exempt Employees

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

The majority of people working an hourly wage are considered non-exempt employees. Most non-exempt 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.

Exempt Employees 

Exempt employees are not entitled to the enforced provisions of the Federal Labor Standards Act (FLSA) like overtime pay. Effective January 1, 2020, a worker can only be designated as an exempt employee if they are paid at least $684 per week ($35,568/year).

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. Free paycheck calculators can help you estimate your actual take-home pay. Paycheck calculators can also be helpful when you’re evaluating job offers.

The information contained in this article is not legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. 

Article Sources

  1. U.S. Department of Labor. "Overtime Pay," Accessed Dec. 5, 2019.

  2. U.S. Department of Labor. "Workweek," Accessed Dec. 5, 2019.

  3. U.S. Department of Labor. "Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act," Accessed Dec. 5, 2019.

  4. New York State Labor Department. "Administrative Employee Overtime Exemption Frequently Asked Questions," Accessed Dec. 5, 2019.

  5. State of California Department of Industrial Relations. "Overtime," Accessed Dec. 5, 2019.