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The company I worked for recently put all of it's employees (management, corporate, etc) on hourly pay. It used to be that all of the corporate headquarters people were salaried.

What potential benefits could be gained by doing this? I would think that salaries are a cheaper, easier option (no overtime costs, simpler payroll, etc).

I live in Ohio, US.

  • Location would be helpful. The US has definitions for exempt/non-exempt, which are often related to salaried/hourly. And those definitions can't be mucked with. But asking to know how many hours people are working is not the same as making their pay hourly either. – thursdaysgeek Oct 15 '15 at 22:08
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    If there was an employee benefit, you'd think your company would mention it. Why don't you ask? – user8365 Oct 16 '15 at 2:09
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    Note that this reclassification may not be legal, see my answer on exempt versus non-exempt in the US here. Exempt status is typically the driving factor for whether employees are paid hourly or are salaried (some exceptions exist). – Lilienthal Oct 16 '15 at 11:45
  • My company pays everyone hourly. However, if you're exempt, you're guaranteed at least 40 hrs pay per week (your "salary") unless you opt to take a "no pay" day. If you're under or over, hours are put into a "bank" that you have to pay back or can take later. – mkennedy Oct 16 '15 at 16:21
  • This is a WTF moment all the Managerial & Professional people might well feel insulted - let alone the problems with exempt non exempt – Pepone Oct 16 '15 at 21:39
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I think there could be two distinct reasons and they both make a lot of sense to me:

  • Make salaried people more accountable for their time. I know there are tons of overworked developers that use this site that would laugh at this. But at my work I doubt that more than 1/3 of the people who are salary actually "work" 40 hours a week.

  • Make your company stick out as a family friendly company. I would love to work for a company that only wanted me working 40 hours a week. I would certainly get a lot of overtime at my current job. It is really commendable that a company would be willing to value its employees enough to persuade people/management to keep the work week to 40 hours.

(There is another side of this that is probably a very small percentage but I will mention it. For some manufacturing based companies they may use this strategy to cut costs in that they can have their employees work far less than 40 hours and pay them less. A lot of times companies move to this strategy if they are about to be bought out or go out of business.)

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It used to be that when you turned "salaried" ("exempt") at a company then suddenly you were working 60+ hours per week and yet paid the same general amount as you were for 40 hours. Going from salaried to hourly for some means that they'll be paid more of a fair wage--when you're expected to be there on the weekend you're paid not only for the hours but for the overtime or double-time rate.

Calculating hourly ("non-exempt") rate is a pain, to be honest. The person might have worked exactly 40 hours for the week but they still earned overtime given that their individual shifts might have been longer than 8 hours each. In some cases, you have to pay someone a different rate to work some holidays.

Possibly the biggest gain the company would have is if they feel that some of the exempt employees aren't putting in the full 40 each week, not putting in the hours results in less compensation.

Some states like California adjust the rules a little. They allow vacation/sick/personal leave time to be applied to absences.

You should make sure that nobody loses their accrued vacation/sick time in this conversion.

  • Calculating weird payroll hours and rates is one of the things computers are for. – John R. Strohm Oct 18 '15 at 15:20
  • In the real world of accounting, the CEO may distrust employees enough to install an ADP timeclock device to track time but not to want to pay for all the services they provide. The net result is that you might get weekly or daily totals out of the device but then have to manually transfer that into your accounting system (manually applying the rates). You would be surprised at how often they're "pennywise and pound foolish". – Michael Blankenship Oct 19 '15 at 18:47
  • Requiring an employee to punch a timeclock is the best and fastest way known to trigger an IRS exempt/non-exempt review, that almost always will end with a non-exempt ruling and a requirement for the company to pay every penny due to the employee and to the IRS. An even marginally-competent CFO will explain this to the CEO, hopefully before the IRS gets the opportunity to explain it to him. – John R. Strohm Oct 20 '15 at 16:17
  • Oh, and requiring your employees to falsify labor records, if you are a defense contractor in the US, gets you thrown in prison. – John R. Strohm Oct 20 '15 at 16:20
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This sounds like a legal issue, so I'm betting that your state may have laws about who is or is not eligible for salary (exempt) rates.

I've been at one company that was "caught" classifying people as exempt when they didn't meet the criteria, but I was a line-level employee at the time, and don't know what the entire story was.

Some worthwhile reading:

Again, I'll bet that this is more about legal compliance than budgeting. You'd have to ask your senior management to find out the story, though, assuming they'll share it with you. Most of the time this is in reaction to learning that they've been "doing it wrong," and want to make the change to be correct from this point on.

I am not a lawyer. Not intended as legal advice. Your mileage may vary.

  • Executives and true management, which seems to be the case here, would not have a problem with the exempt rules. The problems with exempt employees and Obama even issues a change in policy on this, is that many times an individual would be made a 'shift manager', moved to exempt and then worked to death making effectively less than when they were hourly. They were not really overseeing very many people and were a 'working manager' – Bill Leeper Oct 16 '15 at 14:07
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Actually, this can be a good thing.

If they pay overtime at time and a half, it is a VERY good thing.

What it means is that they are aware that people cost money, and that asking people to work extra hours for no extra money is bad practice. By making the decision to PAY people for the hours they work, they're telling everyone they care about their people enough to pay them actual money. Paying overtime makes it clear to even the most casual observer at corporate HQ that such-and-such division is having serious trouble, because their pay costs have suddenly jumped.

If they're having planning problems, and routinely having to go into "crunch mode", this will make the problems obvious all the way up the food chain, because it will show up in the profit and loss statements.

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