Use this article and the dropdowns below to help understand the different ways you can pay an hourly employee. If you need to temporarily remove an employee from payroll, learn how to skip them on payroll rather than adjusting their pay.
If you're looking to convert an employee to a contractor, follow the steps in this article.
Your employees can be classified in different ways based on their salary and the type of work that they do. Once you determine your employee's correct classification, make sure their status is entered correctly in your account. If their status changes, you can update this in their employee profile.
If you aren't sure how your employees should be classified, the Department of Labor has published some helpful guidelines.
Generally, there are three classifications:
Hourly/Eligible for overtime (Hourly/Non-exempt)
Earns wages based on the number of hours the employee works & earns overtime pay when applicable. This is the most common classification since most employees in the United States are required to be paid at least the federal minimum wage for all hours worked plus overtime pay at one and one-half times the regular hourly rate for all hours worked over 40 hours in a workweek.
Salary/Eligible for overtime (Salary/Non-exempt)
Earn a fixed salary if they work 40 hours or less per week. Earn overtime if they work more than 40 hours per week (regulations vary per state).
Salary/No overtime (Salary/Exempt)
Earns a fixed salary regardless of how many hours the employee works. Some employees may be exempt from overtime pay if they are employed as an executive, administrative, professional, or outside sales, as well as certain computer employees. However, job titles alone do not determine exempt status.
To be exempt from overtime, employees generally should be paid on a salary basis of at least $684 per week (equivalent to $35,568 per year for a full-year worker), and their specific job duties must meet a certain set of requirements.
Note: Salaried exempt employees are not eligible for overtime pay.
If you have an employee that will be receiving a commission or other types of incentive payments to help meet the standard salary level, check the box, "This employee will receive commissions or other types of additional compensation."
Commissions and other types of additional compensation can be added each time payroll is run.
Commission Only/Eligible for overtime (Commission Only/Non-exempt)
Earn wages based only on commission. Commission only employees need to make at least minimum wage for hours worked.
Commission Only/No overtime (Commission/Exempt)
Earns wages based only on commission. Some employees may be exempt from overtime pay if they are employed as an executive, administrative, professional, or outside sales, as well as certain computer employees. However, job titles alone do not determine exempt status.
To be exempt from overtime, employees generally should be paid at least $684 per week (equivalent to $35,568 per year for a full-year worker), and their specific job duties must meet a certain set of requirements.
If you have your payroll on Autopilot®, you'll need to enter a commission before the payroll runs—they're set to a $0 salary so they won't be paid if no commission is entered.
Review this article to set up an employee as an owner.
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.
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.
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.
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
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.
Q: Can I edit the name of an earning type or disable an earning type after it's been created?
Q: If I disable an earning type will it still appear on employee paystubs and in reports?
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.
This amount will now be added to each future regular payroll.
Cancel a pending change
You can cancel a scheduled change up until you run a payroll with the new compensation.
Add a historical change
If your employee receives a raise in the middle of a pay period you will need to manually calculate the extra amount to add to the payroll to accommodate the increase.
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.
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.