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Employee classification options

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.

  • Customers on Gusto's Concierge plan have access to HR Pros who can help navigate tricky wage/hour rules - you can upgrade your plan at anytime.

Generally, there are three classifications: 

Hourly/Eligible for overtime (Hourly/Non-exempt)

Earns wages based on the amount 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. 

  • Keep in mind: The DOL permits employers to use non-discretionary bonuses and incentive payments (commission wages, sales incentives and other rewards), as well as housing allowances for certain ministers/pastors, to satisfy up to 10 percent of the standard salary level.
    • If you have an employee that will be receiving 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.

S-Corp owners

Review this article to set up an employee as an owner.

Payroll, benefits, HR and more.