What to Do If Your Employer Switches Your Pay From Salary to Hourly
You will likely be paid in one of two ways : salary (a fixed amount of compensation paid at regular intervals) or hourly wage (salary per hour). About 55.7% of all workers in this country are paid hourly, meaning they are entitled to overtime pay if they work more than 40 hours a week (salaried workers are “exempt” from this rule and do not receive overtime pay if they work more hours). ).
However, many people prefer salaried positions , which are generally considered more secure and usually provide more benefits and career opportunities. But there are legal restrictions when it comes to employee classification: If you earn less than $43,888 per year , you are legally non-exempt under the federal government and receive overtime pay (starting January 1, 2025 , this will increase to US$58,656). – note that states may have their own laws , so a little research is needed here). For some companies, it makes more sense to reclassify their employees as non-exempt and pay them hourly rather than increase their wages to keep them tax-exempt.
Generally speaking, your employer can change your pay (and the amount they pay you ) at any time they wish, as long as they give you notice and do not discriminate in this regard. So if your boss tells you that starting next week you’ll be working hourly rather than salaried, he’ll probably be allowed to do so. And while your options are limited in this scenario, there are a few things you can—and should—do.
Document everything
Keep a copy of the change notice you receive and write down or take notes on every meeting or phone call in which you discuss the new salary and benefits. If everything works out, you may not need any of this, but if you get into a dispute over pay or begin to suspect that you were singled out in retaliation for a change (for example, no one in your group was moved to hourly pay), you will need write down everything you were told.
Calculate the difference
Find out whether the move to hourly work is a hidden pay cut. Will you still work at least 40 hours a week? Will you really work overtime? If you currently work 40 hours a week, you can divide your previous annual salary by 2080 (40 hours X 52 weeks) to find out what your hourly rate was (for example, if you made $60,000 a year and worked 40 hours per week, your hourly rate was 60,000/2080 = $28.85). If you worked 35 hours, divide that number by 1820 (35 x 52).
If your new hourly rate is lower and there is no overtime pay, you have just received a pay cut and should ask your employer for a raise.
You also need to check your benefits. When an employee is converted to an hourly wage, their employer may decide to keep the employee at the same level of benefits as before, but it’s worth checking. If a change in status means that you are no longer eligible for health insurance or employee pension plans, or if your benefit options have changed radically as a result of the change, you may have just lost most of your compensation, even if your annual salary remains the same. Calculate how much your benefits package was worth before and compare it with the new situation. If you lose, see if you can return to your previous package or if you can get compensation for your loss.
Check overtime
On the other hand, if you are not currently tax exempt, you may be able to work overtime, and if you do, your overall income may actually increase . If you regularly worked overtime as an employee, talk to your manager to see if you will be expected/allowed to continue to do so. If your hourly rate matches what you made as an exempt employee and your benefits are comparable, you essentially just got a raise—as long as your overtime continues.
When to quit smoking
If your new compensation represents a reduction in salary and/or loss of benefits, you may want to consider layoffs. While your employer can likely change your salary any time it wants, it cannot do so retroactively and cannot force you to accept a new pay rate. Any work you have already completed must be paid at your old rates. Quitting may be a good idea if you are reasonably confident that you can get a comparable job , since you can base your salary request on your previous salary rather than a new, lower salary.