Use 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, 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.
With Gusto Time Tracking, you can track, review, and approve your team’s hours in Gusto and then run payroll as usual—it’s all automatic.
Learn about the different employee classification options and how to change them.
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.
Keep in mind: Most employees are not exempt from overtime, and misclassifying your employees can result in decreased employee morale and having to pay historical wages.
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 and earns overtime pay when applicable. This is the most common classification since most employees in the U.S. 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 rate of pay 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 don't 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.
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're 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 commission isn't entered.
Review this article to set up an employee as an owner.
If your employee's classification is changing, update this in Gusto using the instructions below.
If the employee is meant to be a contractor, convert them rather than updating their employee-classification.
Important: If you're using multiple pay schedules, there may be a gap or overlap in the employee's hours for this payroll.
Once you've 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, reach out to the primary administrator of your company's Gusto account.Remove a pay rate
The first pay rate is unable to be deleted. To remove the first pay rate, along with every additional pay rate for an employee, 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.
Example: You might use a custom earning type for a signing bonus.
These will be treated as supplemental wages that are separate from regular wages, but will be taxed as regular wages.
You can create as many custom earning types as you'd like, and they'll be available for all employees on all payroll runs.
Naming custom earning types
When naming your earning type, it must be named something different from Gusto's default earning types. You'll get an error if you try to name your custom earning one of the following:
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?
A: Yes. Under the "Actions" column next to the custom earning name, click the three-dot menu and select edit.
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 be added to each future regular payroll.
You can cancel a scheduled change up until you run a payroll with the new compensation.
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.
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.