Admins with the required permissions can update an employee’s classification, compensation, and default hours in Gusto. If you’re unable to complete an action, reach out to the primary admin of your account.
Note: If you need to issue a one-time additional earnings payment, run an off-cycle payroll or extra pay payroll instead.
Before making changes, make sure you understand how each classification works and which one applies to your employee. Classifications in Gusto follow the Department of Labor's Fair Labor Standards Act (FLSA) rules. If you are not sure how to classify an employee, the Department of Labor has helpful guidelines.
Misclassifying employees can result in compliance issues and having to pay historical wages. It is your responsibility to confirm the correct classification for each employee — if you are unsure, consult the DOL guidelines linked above or an HR professional.
Plus and Premium plan customers have access to HR pros who can help navigate wage and hour rules. You can upgrade your plan at any time.
Here is a breakdown of each classification type available in Gusto.
Hourly — eligible for overtime (FLSA nonexempt)
Earns wages based on hours worked and earns overtime pay when applicable. This is the most common classification. Most US employees must be paid at least the federal minimum wage for all hours worked, plus 1.5x their regular rate for hours over 40 in a workweek.
Note: Minimum wage requirements vary by state.
Salary — eligible for overtime (FLSA nonexempt)
Earns a fixed salary for 40 hours or less per week. Earns overtime for hours worked beyond 40 per week. Overtime rules vary by state.
Salary — no overtime (FLSA exempt)
Earns a fixed salary regardless of hours worked. To qualify for this classification, an employee's job duties must meet specific FLSA requirements, and they must generally earn at least $684 per week ($35,568 per year).
Exempt employees may include executives, administrators, professionals, outside sales employees, and certain computer employees. Job titles alone do not determine exempt status.
Note: The DOL allows employers to use non-discretionary bonuses and incentive payments — like commissions and sales incentives — to satisfy up to 10% of the standard salary level. If an employee receives commissions or other additional compensation to meet the salary threshold, check the box in their Gusto profile: This employee will receive commissions or other types of additional compensation.
Commission only — eligible for overtime (FLSA nonexempt)
Earns wages based only on commission. Commission-only employees must earn at least minimum wage for all hours worked. If you use Payroll on AutoPilot®, you must enter a commission before payroll runs — these employees are set to $0 salary and will not be paid if no commission is entered.
Commission only — no overtime (FLSA exempt)
Earns wages in whole or in part on a commission basis in certain industries. To qualify for this exemption, the employee must:
Work for a retail or service establishment
Earn a regular rate of pay more than 1.5x the applicable minimum wage for all hours worked in overtime weeks
Earn more than half of their total income from commissions in a representative period of at least one month but no more than one year
If you use Payroll on Autopilot, you must enter a commission before payroll runs — these employees are set to $0 salary and will not be paid if no commission is entered.
S-Corp owners
See the S-Corp owner setup article to set up an employee as an S-Corporation owner. S-Corp owners will be treated as W-2 employees.
Owner's draws
If you are a sole proprietor, partner, or LLC owner, you may see owner’s draw as a compensation option in Gusto. An owner’s draw is a non-taxed transfer of money from the company to an owner — no payroll taxes are assessed or filed. Owners report these payments on their individual tax returns each year. Note that in Gusto, owners cannot receive both a taxable salary and a non-taxed owner's draw. Learn more about setting up owner’s draws.
Use these steps to update an employee’s classification type in Gusto. You can change one employee at a time or update multiple employees at once.
Note: If the employee is a contractor, convert them to an independent contractor rather than changing their employee classification.
To change one employee's classification:
Click the employee's name.
Go to the Pay tab.
Next to Compensation, click Edit.
Under Employee type, choose the new classification.
Update the compensation rate or default hours if needed.
Click Save.
To change multiple employees' classifications at once:
Click the checkboxes next to the employees you want to update.
Click Actions and select Update compensations.
Click Job title / Employee type.
Under Employee type, select the new classification from the dropdown.
Enter the effective date and reason for the change.
Repeat for each employee.
Click Save and continue.
Review the summary and click Submit updates.
Important: If you use multiple pay schedules, there may be a gap or overlap in the employee's hours for the current payroll. If there is a gap, run an off-cycle payroll for the in-between dates with the prorated amount. If there is an overlap, edit the pay on the employee's next regular payroll with the reduced prorated amount.
Default hours represent the number of hours a salaried employee should work if they differ from a standard 40-hour workweek. Setting the right default hours is important — it affects how Gusto calculates the employee's hourly rate and ensures their pay is accurate. It is not necessary to set default hours for salaried employees.
Important: Default hours are set per workweek, not per pay period.
Understanding how default hours work helps you avoid unintended pay changes. Where you make the change — in the employee's profile or in the payroll flow — determines what happens to the employee's hourly rate and gross pay.
When you set or update default hours in an employee's profile, Gusto recalculates the employee's hourly rate to keep their gross pay consistent. The gross pay per pay period always stays the same — only the hourly rate changes.
Example: A salaried employee earns $3,000 per pay period on a bi-weekly schedule ($78,000/year). If their default hours are set to 35 hours per workweek instead of 40:
Hourly rate at 40 hours/week: $3,000 ÷ (40 × 2) = $37.50/hr
Hourly rate at 35 hours/week: $3,000 ÷ (35 × 2) = $42.86/hr
The employee's gross pay stays $3,000 per period — only the hourly rate adjusts.
Changing hours directly in the payroll flow works differently from changing them in the employee's profile. The hourly rate does not adjust — it stays at the rate calculated from the employee's profile default hours. This means changing hours in the payroll flow directly changes gross pay.
Example (continuing from above): If the employee's default hours are 35 hours/week (hourly rate: $42.86), and an admin reduces hours from 70 to 60 in the payroll flow:
Gross pay at 70 hours: $42.86 × 70 = $3,000
Gross pay at 60 hours: $42.86 × 60 = $2,571.60
Important: Always review gross pay before submitting payroll. Unintended hour changes in the payroll flow will change what your employee takes home and may require a payroll correction.
Use this table to determine where to make your change based on what you want to accomplish.
What you want to do
Where to make the change
Reflect a non-standard workweek without changing gross pay
Update default hours in the employee's profile
Intentionally pay a salaried employee more or less for a specific payroll
Edit hours in the payroll flow
Pro tip: If an employee's pay regularly varies based on the hours they work, consider setting them up as hourly instead. This ensures their pay is calculated accurately and keeps your records clean.
Use these steps to set or change a salaried employee's default hours in their profile.
To set or update default hours:
Click the employee's name.
Go to the Pay tab.
Under Compensation, click Edit.
Enter the employee's default hours per workweek.
Click Save.
If default hours are left blank, Gusto defaults to 40 hours per workweek in payroll. The next time you run payroll, the employee's default hours will appear automatically and the hourly rate will reflect the hours you set.
There are legitimate reasons to adjust a salaried employee's hours while running payroll — for example, if they took unpaid time off or if you need to make a one-time pay adjustment. Keep in mind that changing hours in the payroll flow will change gross pay.
To edit hours while running payroll:
Click Run payroll.
Find the employee and click their hours.
Enter the updated amount.
Review the gross pay to confirm it reflects what you intend to pay.
Finish running payroll.
Important: If you want to update a salaried employee's standard workweek hours without affecting gross pay, update their default hours in their employee profile before running payroll — do not change hours in the payroll flow.
Note: Adding a salaried employee to project tracking will not affect their gross pay.
Use this section to schedule, bulk update, cancel, or view compensation changes for your team. You can also record historical changes and view an employee's full compensation history.
Use these steps to update an employee's salary or hourly rate and set an effective date for when the change takes effect.
Before you make a change, keep in mind:
You cannot backdate or schedule a pay change if payroll has already been run for that pay period.
You cannot backdate or schedule a pay change if the employee uses Time tracking and their FLSA status is changing.
If a pay change takes effect today or earlier, the employee will see it in Gusto right away — even if payroll has not been run yet.
To change one employee's compensation:
Click the employee's name.
Go to the Pay tab.
Under Compensation, click Edit.
Enter the new salary or hourly rate. Make sure the wage amount matches the frequency you select — this is how their pay will be calculated.
Enter the default hours per workweek.
Select when the new compensation takes effect. You cannot select a date in the middle of a pay period.
Specific pay period — choose from any future unprocessed payrolls. The change takes effect on the first day of that pay period.
Specific date — choose a date from the calendar.
Enter a reason for the update (optional).
Click Save.
Note: Compensation changes require a manual calculation if the effective date falls in the middle of a pay period — the new rate applies automatically starting with the next full pay period. The change shows as Pending until the first payroll runs at the new rate.
Use these steps to update pay rates for multiple employees at the same time.
To update multiple employees' compensation at once:
Click the checkboxes next to the employees you want to update.
Click Actions and select Update compensation.
For each employee, enter the salary adjustment as a dollar amount, percentage, or new rate.
Select when the new compensation takes effect. You cannot select a date in the middle of the current pay period.
Enter a reason for the update (optional).
Click Save and continue.
Review the summary and click Submit updates.
If you scheduled a compensation change and need to undo it, you can cancel it at any point before payroll runs with the new rate.
To cancel a pending compensation change:
Click the employee's name.
Go to the Pay tab.
Under Compensation, find the pending change and click Cancel.
Click Yes, cancel.
If you need to record a pay change that happened in the past, use these steps to add it to the employee's compensation history.
To record a past compensation change:
Click the employee's name.
Go to the Pay tab.
Under Compensation, click View compensation history.
Click Add, enter the required information, and click Save.
You can view a full record of compensation changes for any employee directly in their profile. There is no out-of-the-box report for compensation history across all employees.
To view an employee's compensation history:
Go to People and click the employee's name.
Go to the Pay tab.
Under Compensation, click View compensation history.
If an employee's pay changes in the middle of a pay period, you need to manually calculate the prorated amount to add or deduct in payroll. Use these steps to find the right amount. Consult a CPA with any questions, as several calculation methods may be acceptable depending on your situation.
Example: Aly earns $50,000/year and gets a raise to $55,000/year. She is paid every other week. Her raise takes effect in the middle of a pay period.
Note: To apply a new rate before the next full pay period, run an off-cycle payroll for the days at the new rate.
Step 1 — Find the gross pay per period:
Pay frequency
Pay periods per year
Hours per period
Weekly
52
40
Every other week
26
80
Twice a month
24
86.67
Monthly
12
173.33
Aly's old pay per period: $50,000 ÷ 26 = $1,923.08
Step 2 — Find the daily rate:
Aly's old daily rate: $1,923.08 ÷ 14 days = $137.36/day
Step 3 — Find the new daily rate:
Aly's new pay per period: $55,000 ÷ 26 = $2,115.38 Aly's new daily rate: $2,115.38 ÷ 14 days = $151.10/day
Step 4 — Calculate the total pay for the period:
Seven days at $137.36 = $961.52
Seven days at $151.10 = $1,057.70
Total: $2,019.22
Use this section to set up additional compensation that appears automatically in payroll, or to create a custom earning type for pay that does not fit a standard category.
If an employee regularly receives additional compensation — like tips or commission — you can add it to their profile so it appears automatically in every regular payroll.
Note: Recurring additional earnings cannot be set up for contractors at this time.
To add a recurring payment:
Click the employee's name.
Under Information, click Pay.
Scroll to Additional earnings and click Add.
Select the earning type from the dropdown.
Enter the amount per pay period.
Click Save.
Gusto will add this amount to all future regular payrolls.
If the standard earning types — like bonus, tips, and commission — do not fit your needs, you can create a custom earning type and name it whatever you like. Learn how to add a custom earning type.
Gross pay and net pay are two different things — understanding the difference helps you set up compensation correctly and explain paychecks to your team.
Gross pay is the amount an employee earns before any taxes or deductions are taken out. When you tell an employee their salary — for example, $50,000 per year — that is their gross pay.
Net pay is what the employee takes home after all taxes and deductions have been applied. This is the amount deposited into their bank account on payday.