Hourly employee pay rates and custom earning types

Learn about the different employee classification options and how to change them.

When you add default hours, this amount will automatically appear for your hourly employee every time you run payroll. This is useful if you have hourly employees that typically work the same amount of hours each payroll. Note: the default hours you add will be per pay period to align with the pay schedule your company has set up.

 

1. Go to the People section and select Team members. 
2. Click your employee’s name.
3. Within the Job & Pay tab, scroll to the "Compensation" headline.
4. Click edit next to "Default hours."
   • If you don't see this option, have your primary admin grant you the required permissions in order to add default hours for employees.
5. Enter your employee's default hours to be reported per pay period.
6. Click Save.

The next time you run payroll, your employee's default hours will be entered automatically. You can change this amount in your payroll if your employee worked more or less hours than the default number of hours set.

Once you have set up an hourly employee with their first primary pay rate, you can add as many additional pay rates as you'd like. 

1. Click the People section and select Team members.
2. Click your employee’s name.
3. Make sure you're in the Job & Pay tab.
4. In the Compensation section, click Add a job or earning type.
5. Select the earning type or additional pay rate.
6. Next to Job Class Code, select the appropriate risk class code.
   • Applicable only to those who have a workers' comp policy through Gusto - skip to step 7 otherwise.
7. Enter the pay rate.
8. Next to Default Hours per Pay Period, enter a default amount if applicable.
   • This is required if you are using AutoPilot.
9. Click Save.
10. The first pay rate will now be titled Primary Position.
    • Job titles can be updated by clicking Edit next to the pay rate.

Note: If you change an hourly employee to a salaried employee it will remove all additional pay rates from your employee.

Administrators with the required permissions can remove one of the rates from an hourly employee if they have multiple pay rates set up. If you do not see the option to remove a pay rate, please reach out to the primary administrator of your company's Gusto account. 

To remove a pay rate: 

1. Click the People section and select Team members.
2. Click your employee’s name.
3. Navigate to the Job & Pay tab.
4. Click Edit next to the pay rate you would like to remove.
5. Click Remove this additional rate at the bottom of the screen.

There is no way to delete the first pay rate. If you would like to remove the first pay rate along with every additional pay rate for an employee, you can change the Employee Type to Salary/No Overtime.

Rather than limit yourself to standard earning types—like bonus, tips, and commission—you can create a custom earning type and name it whatever you like. These will be treated as supplemental wages that are separate from regular wages, but will be taxed as regular wages. You might use a custom earning type for a signing bonus or severance pay.  

You can create one or many custom earning types in your Gusto account. Custom earning types will be available for all employees on all payroll runs.

Add a custom earning type

1. Sign in to your Gusto account.
2. Go to the Payroll section and select Payroll settings.
3. Under "Custom earnings," click Add custom earning type.
4. Name this wage whatever you'd like. This title will appear on employee pay stubs and in your reports.
5. Click Save.

Now when you enter wages in a regular, off-cycle, or bonus payroll, you'll see this custom earning type in the "Additional Earnings" column.

Note: If other earning types have been used in the past, the new custom earning type may appear within "Other Earnings" in the dropdown elections.

FAQs

Q: Can I edit the name of an earning type or disable an earning type after it's been created?

A: Yes.

Q: If I disable an earning type will it still appear on employee paystubs and in reports?

A: Yes.

If your employee regularly receives additional compensation, you can add this to their profile so you don't have to enter it each time you run payroll. 

Note: recurring payments can't be set up for contractor payments.

1. Click the People section and select Team members.
2. Click on the name of the employee receiving the recurring payment.
3. Scroll to the Compensation headline.
4. If your employee is hourly, click Add a job or earning type.
   • This earning type is a flat amount and can't be hourly.
5. If your employee is salaried, click Add earning type. 
6. Select the type of recurring payment:
   • Bonus
   • Commission
   • Paycheck tips
   • Cash tips
   • Additional earnings
7. Enter the default amount they earn per pay period.
8. Click Save.

This amount will now be added to each future regular payroll. 

1. Click the People section and select Team members.
2. Click on your employee's name.
3. Under Compensation, click edit.
4. Enter in their new salary or hourly rate.
5. Select when their new compensation will be effective.
6. Select a specific pay period from the drop-down menu. You can select from any future payrolls you haven't yet processed, but can't select a date in the middle of the current pay period. The first day of the pay period is the day the change will take effect.
7. If you select a specific date, you can choose the date from the calendar.
   • Note: Compensation changes that take effect on a specific date in the middle of a pay period will require manual calculation. To account for this change, you'll need to calculate the mid-period increase and add it manually.
   • The new compensation amount will reflect fully in the following pay period where the employee receives funds.
8. You can enter a reason for the update if necessary, like "Promotion."
9. Click Save.

Cancel a pending change

You can cancel a scheduled change up until you run a payroll with the new compensation.

1. Click the People section and select Team members.
2. Click on the employee's name.
3. Under Compensation, click Cancel Change.
4. Follow the steps above to schedule a new change if needed.

Add a historical change 

1. Click the People section and select Team members.
2. Click on the employee's name.
3. Under Compensation, click View Compensation History.
4. Click Add Historical Entry.
5. Enter the required information. 
6. Click Save.

Increase pay

If your employee receives a raise in the middle of a pay period, you'll need to manually calculate the extra amount to add to the payroll to accommodate the increase. 

 

1. Multiply their old hourly rate by the number of days in the pay period they worked at this rate.
2. Multiply their new hourly rate by the number of days in the pay period they worked at this rate.
3. Add together both rates to get their correct salary.
4. When you process payroll, add in the difference between their old salary and their correct salary to account for the raise.

Example

My employee Aly makes $15 an hour. She is going to get paid October 14 for the period of October 1-7. She gets a big promotion and gets a raise to $20 an hour effective October 5.

First, I multiply $15 by the 32 hours she worked at that rate to get $480.

Second, I multiply $20 by the 24 hours she worked at that rate to get $480.

I add the two rates together to get her total salary of $960.

When I process payroll I see that her old payment is $840 so I calculate the difference between her old and new total salary, which is $120. I enter $120 as Other Earnings.

Decrease pay

If you need to decrease an employee's pay in the middle of a pay period, you'll need to manually calculate the amount to remove from the payroll to accommodate the decrease. 

1. Multiply their old hourly rate by the number of days in the pay period they worked at this rate.
2. Multiply their new hourly rate by the number of days in the pay period they worked at this rate.
3. Add together both rates to get their correct salary.
4. When you process payroll, subtract the difference between their old pay and their correct pay to account for the decrease.

When it comes to payroll, there are a lot of ways to talk about the wages your employees get paid. Two important terms to understand are net pay and gross pay.

Gross pay is the amount of money your employees receive before any taxes and deductions are taken out. For example, when you tell an employee, “I’ll pay you $50,000 a year,” it means you will pay them $50,000 in gross wages.

Net pay is the amount of money your employees take home after all deductions have been taken out. This is the money they have in their pocket on payday.