How to Calculate Wages & Salaries
The Fair Labor Standards Act is the federal law that governs wages and salaries for nonexempt and exempt employees. Nonexempt employees qualify for overtime pay; exempt employees do not. Most hourly employees are nonexempt; most salaried employees are exempt. Still, an employee can be exempt and be paid on an hourly basis and be salaried but nonexempt. The employer should consult the Department of Labor if unsure of whether to label and pay the employee as nonexempt or exempt. Notably, the state of Texas adopts the federal fair pay wage standards, including a minimum wage of $7.25 per hour as of 2010.
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1.
Pay nonexempt employees at least the federal minimum wage. This applies to hours worked up to 40 for the workweek. The DOL says that under the Youth Minimum Wage Program, employers can pay youths younger than 20 at the reduce minimum wage of $4.25 per hour for the initial 90 days of employment. This is acceptable as long as it doesn’t cause the displacement of other workers.
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Round time clock hours up and down to the nearest five minutes, or to the nearest one-tenth or quarter hour. Hourly employees are paid based on their time-keeping data. Therefore, ensure that you round the time appropriately to avoid shorting the employee’s paycheck.
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3.
Pay overtime hours to qualified workers at 1 1/2 times their regular pay rate. Eligible workers are nonexempt workers who physically work more than 40 hours for the workweek. Pay the excess time at the employee’s overtime rate.
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4.
Pay salaried employees their full salary unless permissible deductions apply. To be paid on a salary basis the employee must receive a set amount of pay that she can count on. This can be weekly or on a less frequent basis, such as biweekly or semi-monthly. Permissible deductions include disciplinary suspension and personal leave. If she’s a new hire or terminated, you can pay her for only the days she actually worked during the pay period. In addition, if she’s not exempt from overtime, she qualifies for overtime pay.
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5.
Make permissible deductions for salaried employees based on their daily or hourly rate.
Daily rate example: $50,000 (annual salary) / 26 biweekly pay periods / 10 days = $192.31.
Hour rate example: $53,000 (annual salary) / 52 weekly pay periods / 5 days / 8 hours = $25.48.
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6.
Withhold applicable payroll taxes. Use the Internal Revenue Service withholding tax tables (Circular E) to compute federal income tax. Compute Social Security and Medicare taxes at 6.2 percent and 1.45 percent of gross earnings, respectively. The state of Texas does not charge state income tax. Withhold wage garnishments according to the notice’s instructions, if applicable.
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7.
Deduct voluntary deductions, such as health and retirement benefits. Deductions, such as regular 401k and medical benefits, are pre-taxed and should therefore be deducted before taxes are withheld. Deductions, such as life insurance and Roth 401k, are post-tax and should be deducted after taxes are withheld.
References
Resources
Tips
- If you use payroll software, the system calculates the wages and salaries.
- Lunch periods are considered unpaid time; short breaks are considered paid time.
Writer Bio
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.