Use this article and the dropdowns below to understand the different ways you can pay salaried employees.
Learn about the different employee classification options and how to change them.
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 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 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.
If your employee's classification is changing, you should update this in Gusto using the instructions below.
If you need information on how to change an employee to a contractor, rather than updating their employee-classification, check out this article on converting employees and contractors.
Change your employee's classification
Important: If you're using multiple pay schedules, there may be a gap or overlap in the employee's hours for this payroll.
You can also edit these hours in payroll if they need to be adjusted for the pay period.
Example: There is a total of 2,080 working hours per year. Joe is paid every other week, for a total of 26 pay periods in the year. 2,080 total annual hours divided by 26 pay periods equals 80 hours per pay period.
If you have an employee who works more or less than the default 40 hours per week, and you want their actual hours worked to be reflected on the paystub, you'll need to add them as an hourly employee and add their specific default hours.
If you need to edit the default hours for salaried employees in payroll, you can do so from your admin Gusto account. Note: At this time, there is not a way to adjust a salaried employee's hours without also adjusting the employee's wages.
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?
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
Please consult a CPA with any questions about the method outlined below—several methods may be acceptable depending on your specific situation.
In the example calculation below, Aly is making $50,000 a year when she gets a raise to $55,000 a year. She's paid every other week on Friday. Her raise is effective in the middle of the pay period, on a non-payday Friday.
|Divide their annual salary by the number of pay periods in a year||Aly makes $50,000 a year and is paid every other week||$50,000/26 = $1,923.08|
|Divide the amount they are paid in a period by the number of days in a period to calculate their old daily rate.||Aly makes $1923.08 for 14 day worked||$1923.08/14 = $137.36|
|Repeat the steps above to find your employee's new daily rate.||Aly now makes $55,000 a year. Her new daily rate is $151.10.|| |
$55,000/26 = $2,115.38.
$2115.38/14 = $151.10
|Add the number of days at the old rate with the number of days at the new rate to get the total salary for the pay period.||Aly worked 7 days at $137.36 a day. She worked 7 days at $151.10 a day. Her total salary for the pay period is $2,019.22.|| |
$137.36 x 7 = $961.52
$151.10 x 7 = $1,057.70
$961.52 + $1,057.70 = $2,019.22
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.