The Fair Labor Standards Act (FLSA) is a federal law in the United States that establishes minimum wage, overtime pay, recordkeeping, and child labor standards for employees in the private sector and in Federal, State, and local government positions. The FLSA makes a clear distinction between hourly and salaried employees and the corresponding wage and hour laws that apply to each group.
If you are a small business owner trying to understand the federal and State of Hawaii rules for hourly and salaried workers, Makai HR is here to help. As a professional employer organization (PEO), we make sure that all our clients are following all FLSA and other employment laws.
FLSA, Wage and Hour Laws: Hourly Vs Salary
Hourly employees
Hourly employees are paid by the hour, which means that they receive a set hourly wage for each hour worked. The FLSA requires that hourly employees be paid at least the federal minimum wage, which is currently $7.25 per hour. Many states have their own minimum wage laws that are higher than the federal minimum, and employers are required to pay the higher of the two rates. In Hawaii, the minimum wage is currently $12.00 per hour but it will rise to $14.00 per hour on January 1, 2024.
In addition to minimum wage requirements, the FLSA also requires employers to pay their hourly employees overtime pay at a rate of one and a half times their regular hourly rate for any hours worked over 40 in a workweek. For example, if an hourly employee is paid $12 per hour and works 48 hours in a workweek, the employer is required to pay $18 per hour for the eight hours of overtime worked.
Salaried employees
Salaried employees are paid a fixed salary, regardless of the number of hours they work in a workweek. In order to protect salaried workers, the FLSA sets certain criteria that must be met in order for an employee to be classified as exempt from overtime pay requirements. To qualify for exemption, an employee must meet three tests: the salary basis test, the salary level test, and the duties test.
- The salary basis test requires that the employee be paid the same salary each week, regardless of the quality or quantity (number of hours) of work performed.
- The federal salary level test requires that the employee be paid a salary of at least $684 per week (the Department of Labor is expected to publish a proposed rule change this year that could increase the minimum salary requirement for exemption).
- The duties test requires that the employee mostly performs executive, administrative, or professional duties and includes the exercise of discretion and independent judgment with respect to matters of significance.
If an employee meets all three tests, they are considered exempt from the overtime pay requirements of the FLSA. This means that they are not entitled to receive overtime pay for any hours worked over 40 in a workweek.
Rules for Hawaii employers:
Under Section 387-1, HRS, an individual working in Hawaii in any capacity who receives a guaranteed compensation of $2,000.00 or more per month OR an individual who works in a legitimate executive, administrative, supervisory or professional capacity is exempt from the minimum wage and overtime rules.
Deciding between hourly and salaried employees
Salaried workers are paid consistently throughout the year, based on an annual salary. Hourly workers are paid for each hour that they work, including a special rate for overtime pay. The decision to classify an employee as hourly or salaried will depend on a few factors, including the type of work, the employee’s responsibilities, and the employer’s budget. Hourly employees are often used for jobs that are more “hands-on” in nature, such as serving or construction. Salaried employees are often used for jobs that require a higher level of education or responsibility, such as management or professional positions.
Employers must be careful to classify employees correctly under the FLSA’s classification criteria because misclassification can lead to legal action and expensive fines. Employers should review their job descriptions and employee responsibilities to ensure that each employee is classified correctly as either hourly or salaried.
Partnering with Makai HR
We are proud to be named to Hawaii Business Magazine’s 2023 Best Places to Work and Pacific Business News’ 2023 Hawaii’s Best Workplaces list. If you’re looking for comprehensive HR solutions for your business, we’ve got you covered through HR outsourcing.
When you partner with Makai HR you can get on with the business you are trying to grow while we take care of your employee needs from payroll to taxes, health insurance/benefits and worker’s compensation. You also gain peace of mind that you are compliant with all of Hawaii’s employer laws (if you’ve ever looked you know that the list is very long and changes happen). When choosing a PEO to partner with, there are many things to consider including cost, services, and technology solutions.
With the cost of doing business in Hawaii at record highs, we know how important it is to keep labor costs in line with revenue. Our plans are priced competitively and include value-added services like time-in/time-out systems. Our customized PEO solutions are tailored to the size of your business and specific needs. We offer a 100% paperless solution which means that your employees can manage their needs through a computer, tablet, or phone. We can truly improve your employees’ work benefits while freeing you up to operate your business.
What are you waiting for? Companies that partner with a PEO benefit from 7-9% faster growth, 10-14% lower employee turnover; and they are 50% less likely to go out of business. Contact us today to get started!