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New Hourly Employees Should Start Tracking Time Now

businessman running on clockThousands of businesses will potentially be switching millions of employees from salary to hourly status in response to the new overtime rule. While companies must be compliant by December, getting started now is a good idea because the process is not as simple as flipping a switch. New hourly rates need to be figured out, companies need to decide on an approach to time tracking for these new workers, and employees need to be trained.

Switch Employees From Salary to Hourly

The new salary threshold for salaried employees will be $47,476 per year. So any salaried employees who make less than that now will need to either be switched to non-exempt status or get a bump in salary come December.

Employees that are switched from exempt to non-exempt status can remain on salary and get overtime when they work over 40 hours a week but this is not ideal because most time tracking systems are not designed to work this way and there are issues with true hourly rates and deductions. Read this post for details.

When you switch employees from salary to hourly you’ll need to figure out their hourly rate. This rate will be based on their old weekly salary and the number of hours you expect them to work each week.

Hourly rate for employees who work only 40 hours per week:

If the employee will only be working 40 hours a week, then take their old weekly salary and divide it by 40. This number is the employee’s new hourly rate.

Steps to create a rate for employees who work over 40 hours:

If the employee will work over 40 hours and you want them to maintain their old salary, i.e. not rack up expensive overtime, then you’ll need to lower their hourly rate.

  • Figure out how many hours the employee works over 40 in a week on average
  • Multiply that number by 1.5
  • Add 40
  • Divide the employee’s old weekly salary by that number to get the hourly rate

Example:

  • Employee works 50 hours per week so 10 are overtime hours
  • 10 overtime hours multiplied by 1.5=15
  • 15+40=55
  • $500/55=$9.09 per hour (for an employee who used to make $500 per week)

Be sure this new hourly rate meets the federal and state minimum wage.

Start Tracking Time

All hourly employees must track their time. The question is, what method should these new hourly employees use? Here are the options and the pros and cons of each:

  • Pen and paper
    • Pros: It’s free and simple
    • Cons: Lots of room for calculation errors, rounding, and time padding, time consuming, innacurate
  • Excel spreadsheets
    • Pros: Eliminates some of the error and is free
    • Cons: Employees can round their time and pad their time, timesheets need to be emailed to the manager
  • Swipe card system
    • Pros: Everyone’s time is in one place and totals are calculated automatically
    • Cons: They are very expensive, cards can get lost, not mobile, employees can’t request changes
  • Online Time Tracking
    • Pros: Everything in one place, employees make requests online, mobile use and restrictions, quick reports, integrates with payroll, tracks accruals, supervisor approvals, audit trail
    • Cons: It’s not free

Train Hourly Workers

Once you’ve figured out which time tracking method to use, employees need to be trained on how to use it and on wage and hour rules.

  • Hourly employees must clock in and out from work. Time tracking is required for hourly employees.
  • Hourly employees must be on the clock at all times while working, even while working at home and at night.
  • Hourly employees must be paid for travel time, waiting time, and on-call time.
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