Hourly employees are one of the crucial segments of the daily workforce, allowing organizations to hire workers per hour when needed. However, hiring hourly employees is different from full-time workers.
Understanding the legal framework of hourly employee laws is essential to ensure compliance. In the United States, the Wage and Hour Division of the Department of Labor sets guidelines that ensure fair compensation and working conditions for hourly employees.
If your company hires hourly employees, it’s essential to understand the critical frameworks of these regulations to ensure compliance.
This article details hourly employee laws and how they impact employees and employers.
Table of Contents
Who is considered an hourly employee by law?
An hourly employee, defined by law, is a worker compensated by the employer on an hourly basis for the actual hours worked, in contrast to salaried employees.
The hours are tracked during the work week. A work week is defined as 168 hours during seven consecutive 24-hour periods. There is no rule regarding which day or hour the work week will start; it’s at the employer’s discretion.
The ‘pay period’ refers to the timeframe over which wages are calculated and disbursed. It should be a consistent period decided by the employer and can be weekly, biweekly, semimonthly, monthly, or yearly.
All hourly employees are entitled to receive at least the federal minimum wage, but the employers can decide the hourly rate for work. However, it cannot be lower than the federal minimum wage guidelines.
What is an hourly rate?
An hourly rate is a monetary amount that an employer agrees to pay an employee for each hour of work performed. The calculation of the compensation for the hourly employee is different from fixed salary as they receive payment based on the actual hours they work.
For example, an individual who works for 8 hours at a $10 hourly rate will receive $80 as compensation.
Understanding the intricacies of hiring or being an hourly employee helps employers and employees know their rights and get compensated based on hours worked.
How many hours can an hourly employee work?
There is no federal law regarding the number of hours an hourly employee can work. Whether the hourly employee is eligible for overtime compensation depends on their status per the Fair Labor Standards Act (FLSA).
Depending on the requirements of your business, you can employ hourly workers to work for any number of hours. However, they fall in the category where they must be paid overtime. In that case, you must provide extra compensation for the hours outside the standard work week for hourly employees, typically 40 hours.
While you can hire an hourly employee and make him/her work for any number of hours, maintaining regular work hours helps regulate work hours, preventing employee exploitation and ensuring fair compensation.
As there are no hourly employee laws around how many hours they can work, organizations should decide weekly hour limits and aim to strike a balance between productivity and worker welfare.
How does an hourly employee get paid?
Payment for hourly employees is calculated similarly to the fixed salary workers. However, they are paid only for the hours worked. In addition to the standard payment procedures, considerations for on-call workers, rounding rules, and the 7-minute rule add layers of complexity to the compensation calculation.
The hourly rate the employer and employee agreed upon serves as the basis for this compensation. The frequency and duration of payments can be decided depending on the workweek and pay period. Let’s explore some scenarios that affect the compensation of hourly employees.
On-call workers are the hourly employees who are required to be available for work even if they are not actively working. Paying such hourly workers poses unique challenges in the payment process. Generally, on-call time is compensable; you must pay the employees for their time waiting to be engaged in work.
Companies employing on-call workers should have clear policies regarding on-call compensation that ensure fair remuneration for employees’ time and availability.
Rounding rules streamline the timekeeping process for easy payment calculation for hourly employees. When employees are paid hourly, it is essential to record the hours and minutes accurately worked. However, if workers work for a few extra minutes, technically, they need to be paid; adding these minutes to the calculation will make it complicated.
Rounding rules, such as the 7-minute rule, are implemented to overcome this challenge. The 7-minute rule is a common rounding practice allowing employers to round hourly employee time to the nearest quarter-hour.
For example, if an employee works for 10 minutes, it can be rounded to 15 minutes for payroll purposes. However, rounding rules should be established to provide fair compensation to employees rather than favor the employer consistently.
Using the 7-minute rule, time entries are rounded to the nearest 15-minute increment. By simplifying the compensation, rounding rules ensure a fair and impartial way for employees and employers to work things out. However, employers should use transparent timekeeping systems like Truein to ensure rounding rules are accurately applied.
Truein is a cloud-based, hardware-less time and attendance management software that employers across industries can use to record hours worked for hourly employees accurately. It also includes rules for overtime calculations, and its AI-powered facial recognition and GPS geofencing technologies ensure that employees cannot falsify time records.
Do I need to pay for hours not recorded?
According to labor laws, employers are generally required to pay hourly employees for all hours worked, even if the hours were not officially recorded through a timekeeping system. The Guide to the Fair Labor Standards Act clearly states that employers must compensate for every hour worked even if the hourly employees didn’t record it.
Employees should ensure that reliable time-tracking systems like Truein are in place because the employer is responsible. If you don’t maintain accurate and complete records of hours worked by hourly employees, it can lead to several issues, such as inaccurate compensation, employee dissatisfaction, and penalties.
A robust timekeeping system allows accurate tracking of work hours. It helps prevent disputes and ensures compliance with labor laws. Failing to pay employees for hours worked, even if not recorded, can lead to incompliance with the hourly employee laws and result in legal consequences.
Can I make hourly employees work off the clock at any time? Do I need to pay for overtime work?
Making employees off-the-clock is a violation of hourly employee laws. For compliance, workers must be paid for the hours worked, even if they do not formally record them.
Generally, off-the-clock work refers to tasks performed for the employer’s benefit that are not recorded or compensated. It is strictly prohibited to make anyone work off the clock, irrespective of the type or size of the business.
Furthermore, some hourly employees are entitled to overtime payment for hours beyond 40 hours in a workweek. The overtime pay rate is typically one and a half times the employee’s regular hourly rate for each hour worked beyond the standard 40 hours.
At the same time, some companies also pay two times the regular pay rate to compensate employees for their additional efforts. The rules around overtime vary from state to state, so employers must be familiar with federal and state regulations to ensure compliance.
Some states, such as Alaska, California, and Nevada, may have more stringent overtime requirements. These states require employers to pay overtime daily.
Company policies play a crucial role in ensuring compliance with the labor laws. While you cannot make hourly employees work off-the-clock, you can exempt them from additional compensation such as bonuses and paid time off.
Employers should communicate these policies to their employees. Policies should cover issues related to working off-the-clock, overtime eligibility, and the process for recording and reporting hours worked. For instance, in some states, such as Colorado, companies can set up a workweek for 60 hours rather than the typical 40 hours.
All policies should be created by consulting legal professionals or labor experts to ensure they comply with federal and state labor laws to avoid legal repercussions.
Can I prepare hourly employee time cards on their behalf?
We won’t recommend employers to prepare or change the hourly employee time cards on their behalf. There are no rules against such practice, but it can lead to unnecessary disputes and misunderstandings between the management and hourly employees.
Truly accurate timekeeping is a crucial aspect of fair compensation. Usually, timekeeping systems require some employee input or verification.
If you are making changes to the hourly employee time card on their behalf, they won’t have the opportunity to review the changes. Employees can review and confirm their worked hours to ensure they are paid accurately.
Some of the reasons why you should avoid preparing time cards on behalf of hourly employees are:
1. Lack of transparency
Hourly employees are in the best position to report their working hours accurately. Their inputs ensure transparency and reduce the risk of errors.
2. Employee consent
Recording time without the employee’s knowledge or consent may lead to disputes. It can also create a lack of trust, negatively impacting the employer-employee relationship.
3. Legal compliance
Accurate timekeeping is mandated by several state hourly employee laws. Preparing time cards without hourly employee involvement may lead to non-compliance with these legal requirements.
One of the reasons why employers are forced to handle hourly employee time cards is because of accessibility. If the hourly employee cannot access the timekeeping system, it will lead to issues.
Truein saves from this trouble by offering cloud-based time and attendance management infrastructure. It allows hourly employees to clock in and clock out using their phones.
Whether remote workers or employees within an establishment, using Truein workers can record attendance and time accurately, empowering employees to take ownership of their working hours.
What are the minimum rest break requirements, and how do you track break hours?
Minimum rest break requirements for hourly employees vary as there are no state mandates. For example, the Fair Labor Standards Act (FLSA) does not mandate specific rest breaks for employees in the United States.
However, some state jurisdictions have created their regulations regarding rest breaks. For instance, California requires employers to provide a paid 10-minute rest break for every four hours worked.
Generally, it’s a good idea to offer rest time to hourly employees for their health benefits. Especially if the hourly workers are working long shifts, they should be provided breaks to keep their productivity high.
Setting up a mechanism to track break hours accurately is essential to offer healthy breaks and ensure productivity. Firstly, employers should establish clear policies regarding break periods and communicate these policies to hourly employees.
Clear communication is the best way to ensure compliance at work. Make it clear to the hourly employees how to conduct themselves to request breaks. Employees may be required to clock out for their holidays if the leaves are unpaid. It is essential for accurate tracking of work hours.
Again, automatic timekeeping systems, whether manual or electronic, should include a feature for employees to record break times. A good employer encourages employees to take breaks as required by law and addresses any concerns or barriers that may prevent them from taking them.
Federal laws regarding regular employees state that any breaks of less than 20 minutes need to be paid. Employees should clock out if a break time of more than 30 minutes is needed.
Ensure compliance with local laws
Just like hourly employee laws, there can be local regulations regarding rest breaks that employers should be familiar with. Check if the jurisdictions where your business is operational have specific rules about the duration and compensation for breaks.
Irrespective of the laws, employers must ensure that there are accurate records of break times to demonstrate compliance with labor laws in case of audits or disputes.
Furthermore, periodically review and update break policies to ensure they align with current regulations. Employers are responsible for regularly checking for updates or changes in the labor laws.
Do I need to pay employees for travel & training?
Employees are generally required to pay hourly employees for training and travel. Under the Fair Labor Standards Act (FLSA), an employer must pay employees for all the activities conducted on their premises during work hours or at a prescribed workplace. This can include certain nonproductive activities such as travel and training.
Do not confuse commutation time as a requirement to pay hourly employees. It doesn’t include any time spent outside the business activity.
However, suppose the hourly employee is traveling for business activity, such as visiting another site to give a presentation or attending a mandatory training day at any facility. In that case, it will be considered compensable time.
However, employees can voluntarily accept to pay hourly employees for travel and training time. It is essential to understand that travel that is an integral part of the job or benefits the employer may be compensable. For work-related travel during the regular workday, employees are typically entitled to compensation for the time spent traveling.
If any hourly employee chooses to train voluntarily, outside regular working hours and does not directly benefit the employer, it may not be compensable. Employers must review and understand relevant labor laws in their jurisdiction regarding travel and training compensation requirements and, if necessary, seek legal advice to ensure compliance.
Additionally, hourly employees should be informed about company policies regarding compensation for travel and training time.
Do hourly employees get employee benefits?
Whether hourly employees receive employee benefits depends on the total number of hours they work. Hourly employees are not automatically excluded from employee benefits as most people assume. While these employees are not on the fixed salary payroll, they still can be eligible for additional benefits.
You may have to offer them the same benefits as salaried employees if you hire full-time hourly employees. According to the Affordable Care Act (ACA) and Internal Revenue Service (IRS), any worker working at least 30 hours a week or 130 hours a month will be considered a full-time employee.
Hence, if any hourly employee works for 30 hours a week or 130 hours a month, the employer may have to offer them benefits.
What benefits are provided to full-time hourly employees can vary. Still, full-time employees are usually offered health and dental insurance, retirement plans, life insurance, bonuses, and paid time off to hourly employees. The decision to provide what benefits is at the discretion of the employer.
Employers can create some specific eligibility criteria for employee benefits. These criteria can vary widely depending on the employment type. It can also depend on the local laws that may require certain benefits to be offered to all employees. For example, some regions may have regulations regarding paid time off or contributions to retirement plans.
Hourly employees, especially those working part-time, may have different eligibility criteria for benefits compared. Both employers and employees must be aware of the company’s policies regarding employee benefits.
How to track hours worked by hourly employees?
Compliance with hourly employee laws is essential for every employer. Whether you hire hourly employees, full-time or part-time, you must ensure fair and accurate compensation. To achieve this, you need to track hours worked by hourly employees accurately.
Various methods and technologies can be used to provide accurate timekeeping. Some businesses use time clock systems as punch-in tools or manual spreadsheet solutions.
Their advantage is their straightforward way for hourly employees to clock in and out. While such systems offer precise time tracking, they still require manual data entry into the payroll system for various calculations.
A more preferable option is time and attendance software. Such time-tracking solutions are fully automated and offer integration with most payroll systems. Additionally, they use advanced technologies such as biometric authentication and geofencing for accuracy. Truein is one such time and attendance software created to ensure industry compliance.
Truein was created with contractual and hourly employees in mind, so it features over 70 customizable policy templates that employers can use to communicate their policies regarding hourly employee compensation, overtime, benefits, and more.
Also available as a mobile app, Truein can instantly be deployed to any number of contractual or hourly employees and onboard them into the workforce. You can even hire contractual staff from multiple external agencies.
With Truein’s contractor-level limit feature, you can specify the number of staff that are sourced from agencies which in turn prevents additional billing.
Employees can clock in and out using their smartphones, and the GPS geofencing in Truein ensures that employees are in the designated work location when clocking in. This time and attendance software empowers employees to self-service.
They can record their hours worked, request time off, request breaks, and more. Furthermore, by easily integrating with most payroll systems, it streamlines the payroll process and reduces the likelihood of errors.
Hourly employee laws are created to protect the rights and well-being of hourly workers. Both employers and employees need to familiarize themselves with these laws. It helps employers to create a fair and lawful work environment for the hourly employees.
At the same time, it empowers workers to know their rights and abide by the policies around hourly employee laws. Compliance with these laws prevents legal consequences and contributes to a positive workplace culture, fostering trust between employers and hourly employees.
To ensure fair compensation for hourly employees, accurate tracking of hours worked is fundamental. Modern cloud-based time and attendance solutions like Truein make timekeeping efficient, ensuring fair compensation and compliance with labor laws.
Truein offers a transparent and accurate system to record hours for adhering to legal standards, avoiding potential disputes, and fostering a positive employer-employee relationship.