Hourly employee pay rates and custom earning types

Summary

Find information about hourly employee classification options, custom earnings, default hours, multiple pay rates, and how to change an hourly employee's compensation.

Content

Admins with the required permissions can edit an employee's hours and compensation. If you're unable to complete an action, reach out to the primary admin of your account.

If you need to temporarily remove an employee from payroll, skip them on payroll rather than adjusting their pay. If you're looking to convert an employee to a contractor, follow the steps in this article.

With Gusto Time Tracking, you can track, review, and approve your team’s hours in Gusto and then run payroll as usual—it’s all automatic.

Changing employee classification type

Learn about the different employee classification options and how to change them.

Employee classification options

Your employees can be classified in different ways based on their salary and the type of work that they do. These classifications operate under the Department of Labor FLSA’s rule in Gusto.

Hourly = FLSA Nonexempt
Salary/No Overtime = FLSA Exempt
Commission = FLSA Exempt

Once you determine your employee's correct classification, make sure their status is entered correctly in your account. If their status changes, you can update it in their employee profile.

Keep in mind: Most employees are not exempt from overtime, and misclassifying your employees can result in decreased employee morale and having to pay historical wages.

If you're not sure how your employees should be classified, the Department of Labor has published some helpful guidelines.

Customers on Gusto's Plus and Premium plan have access to HR Pros who can help navigate tricky wage/hour rules—upgrade your plan at any time.

Generally, there are three classifications:

Hourly/Eligible for overtime (Hourly/Non-exempt)

Earns wages based on the number of hours the employee works and earns overtime pay when applicable. This is the most common classification, as most employees in the U.S. are required to be paid at least the federal minimum wage for all hours worked plus overtime pay at one and one-half times the regular rate of pay for all hours worked over 40 hours in a workweek.

Note: Minimum wage requirements can vary by state.

Salary/Eligible for overtime (Salary/Non-exempt)

Earns a fixed salary if they work 40 hours or less per week. Earns overtime if they work more than 40 hours per week (regulations vary per state).

Salary/No overtime (Salary/Exempt)

Earns a fixed salary regardless of how many hours the employee works. Some employees may be exempt from overtime pay if they're employed as an executive, administrative, professional, or outside sales, as well as certain computer employees. However, job titles alone do not determine exempt status.

To be exempt from overtime, employees-specific job duties must meet a certain set of requirements, and they generally should be paid a salary of at least:

$684 per week (equivalent to $35,568 per year for a full-year worker)

Note: Salaried exempt employees are not eligible for overtime pay.

Keep in mind: The DOL permits employers to use non-discretionary bonuses and incentive payments (commission wages, sales incentives, and other rewards), as well as housing allowances for certain ministers/pastors, to satisfy up to 10 percent of the standard salary level.
- If you have an employee that's receiving a commission or other types of incentive payments to help meet the standard salary level, check the box in their Gusto account, "This employee will receive commissions or other types of additional compensation."
  - Commissions and other types of additional compensation can be added each time payroll is run.

Commission Only/Eligible for overtime (Commission Only/Non-exempt)

Earns wages based only on commission. Commission-only employees need to make at least minimum wage for hours worked.

If you have your payroll on Autopilot®, you'll need to enter a commission before the payroll runs—they're set to a $0 salary in Gusto, so they will not be paid if no commission is entered.

Commission Only/No overtime (Commission/Exempt)

Earns wages in whole or in part on a commission basis and works in certain industries.

To be exempt from overtime under the FLSA’s commission rule, employees must meet a certain set of requirements:

Must be employed by a retail or service establishment.
The employee’s regular rate of pay must be more than one and one-half times the minimum wage rate in effect for all hours worked in a workweek the employee works overtime hours.
More than half of the employee’s total income earned in a representative period is from commissions. A representative period can be at least a month but no more than a year in determining if the employee is paid mostly commissions.
If you have your payroll on Autopilot, you'll need to enter a commission before the payroll runs—they're set to a $0 salary in Gusto, so they will not be paid if no commission is entered.

S-Corp owners

Review this article to set up an employee as an S-Corporation owner.

Switch your employee to hourly, salaried, or commission

If your employee's classification is changing, update this in Gusto using the instructions below.

If the employee is meant to be a contractor, convert them to an independent contractor rather than updating their employee-classification.

Change a single employee's classification

Sign in to Gusto.
Click the People section.
Click your employee’s name.
Go to the Pay tab.
Click Edit next to the "Compensation" section—if you do not see this section, you may not have the required admin permissions. Reach out to the primary admin on the account to update your permissions.
Under Employee Type, select one of the following from the dropdown:
- Salary/No Overtime
- Salary/Eligible for Overtime
- Paid by the Hour/Eligible for Overtime
- Commission only/No overtime
- Commission only/Eligible for overtime
Update the compensation rate or default hours per pay period, if applicable.
Click Save.

Bulk edit multiple employees' classifications

Sign in to Gusto.
Click the People section.
Click on the checkboxes next to the employees whose compensation you’d like to update.
Click Actions and select Update compensations.
Click Job title/Employee type.
Select the new employee type from the dropdown.
Once all changes have been made, click Save and continue.
Review the summary to make sure the changes look good and click Submit updates to finalize the changes.

Important: If you're using multiple pay schedules, there may be a gap or overlap in the employee's hours for this payroll.

If there's a gap between the employee's old and new pay schedules, run an off-cycle payroll for the in-between dates with the prorated amount.
If there's an overlap, you'll need to edit the pay on the employee's next regular payroll with the reduced prorated amount.

Add default hours for hourly employees

When you add default hours, this amount will automatically appear for your hourly employee every time you run payroll. This is useful if you have hourly employees that typically work the same amount of hours on each payroll.

Note: The default hours you add will be workweek.

Sign in to Gusto.
Click the People section.
Click your employee’s name.
Go to the Pay tab.
Scroll to the "Compensation" section and click edit.
- If you do not see this section, you may not have the required admin permissions. Reach out to the primary admin on the account to update your permissions.
Enter your employee's default hours to be reported per workweek.
- If "Default Hours" are left blank for hourly employees, 0 hours will be defaulted into payroll.
Click Save.

The next time you run payroll, your employee's default hours will be entered automatically. You can change this amount in your payroll if your employee worked more or less than the default number of hours set.

Add multiple pay rates for hourly employees

Once you've set up an hourly employee with their first primary pay rate, admins with the required permissions can add as many additional pay rates as they'd like.

Note: If you change an hourly employee to a salaried employee, it'll remove all additional pay rates from your employee.

Add an additional job

Sign in to Gusto.
Click the People section.
Click your employee’s name.
Go to the Pay tab.
In the Additional jobs section, click + Add.
- Adding a job is only available to hourly employees.
Choose the new job title from the dropdown, or click create job title.
Select the wage frequency, and enter the wage amount.
Enter default hours, if applicable.
- This is required if you're using AutoPilot.
Click Save.

Add a new earning type

Sign in to Gusto.
Click the People section.
Click your employee’s name.
Go to the Pay tab.
In the "Additional earnings" section, click + Add.
Select the new earning from the Earning Type dropdown.
Enter the default amount, which will be automatically included every pay period.
Click Save.

Remove a pay rate for hourly employees

Administrators with the required permissions can remove one of the rates from an hourly employee if they have multiple pay rates set up. If you do not see the option to remove a pay rate, work with the primary admin of your company's Gusto account.

Remove a pay rate

Sign in to Gusto.
Click the People section.
Click your employee’s name.
Go to the Pay tab.
Find “Additional earnings” and click Edit next to the additional earning you'd like to remove.
Click Remove at the bottom of the screen.
Click Yes, remove to confirm.

The first pay rate is unable to be deleted and can only be edited. To remove the first pay rate, along with every additional pay rate for an employee, change the "Employee Type" to Salary/No Overtime.

Add and pay out custom earning types

Rather than limit yourself to standard earning types—like bonus, tips, and commission—you can create a custom earning type and name it whatever you like.

Learn how to add a custom earning here.

Add a recurring payment to payroll

If your employee regularly receives additional compensation, you can add this to their profile so you do not have to enter it each time you run payroll.

Note: Recurring payments cannot be set up for contractor payments.

Sign in to Gusto.
Click the People section.
Select the employee.
From the Pay tab, find the “Additional earnings” section and click Add.
Select the earning type from the dropdown.
Enter the default amount they earn per pay period.
Click Save.

This amount will be added to each future regular payroll.

Schedule a compensation change—change pay

Before you make changes

A compensation change cannot be backdated if payroll has already been run for that pay period.
If you make a compensation change that's effective today or earlier (backdated), employees will see it in Gusto right away — even if you have not run related payrolls yet.

Edit a single employee's compensation

Sign in to Gusto.
Click the People section.
Click on your employee's name.
Go to the Pay tab.
Under the "Compensation" section, click edit.
Enter their new salary or hourly rate. Pay attention that the wage amount is for the wage frequency you select, as this is how their pay will be calculated.
Enter the default hours per workweek.
- For salaried employees, this is useful if they do not work a standard 40-hour workweek, as you will not need to update their hours on every payroll.
- For hourly employees, this is useful if your employee works the same number of hours every week
Select when their new compensation will be effective:
- Specific Pay Period
  - Choose from any future payrolls you have not yet processed. The first day of the pay period is the day the change will take effect.
  - You cannot select a date in the middle of current pay period.
- Specific Date—choose a date from the calendar.
  - Heads up: Compensation changes that take effect in the middle of a pay period will require manual calculation. You'll need to calculate the mid-period increased amount and add it manually to the employee's pay when processing the impacted payroll.
  - On future payrolls, the new compensation amount will apply to the full pay period.
(Optional) Enter a reason for the update, like "Promotion".
Click Save.

Bulk edit multiple employees' compensation

Sign in to Gusto.
Click the People section.
Click the checkboxes next to the employees whose compensation you’d like to update.
Click Actions and select Update compensation.
For each employee:
- Enter their salary adjustment in one of the following ways:
  - Enter the difference in gross wage in dollar amount or percentage.
  - Enter their new salary or hourly rate.
- Select when their new compensation will be effective.
- Select a specific pay period from the dropdown menu.
  - You can select from any future payrolls that have not been processed, but cannot select a date in the middle of the current pay period.
  - The first day of the pay period is the day the change will take effect.
- (Optional) Enter a reason for the update, like "Promotion".
Once all changes have been made, click Save & continue.
Review the summary to make sure the changes look good and click Submit updates to finalize the changes.

Cancel a pending change

You can cancel a scheduled change until you run a payroll with the new compensation.

Sign in to Gusto.
Click the People section.
Click on the employee's name.
Go to the Pay tab.
Under the "Compensation" section, find the pending change and click Cancel.
Click Yes, cancel.
Follow the steps above to schedule a new change if needed.

Add a historical change

Sign in to Gusto.
Click the People section.
Click on the employee's name.
Go to the Pay tab.
Under the "Compensation" section, click View compensation history.
Click Add.
Enter the required information.
Click Save.

View compensation history for an employee

You can view compensation changes for each employee in their Gusto profiles—for now, there is no out-of-the-box report that can be run for all employees.

To view compensation changes in an employee's profile:

Go to the People section.
Click the employee's name.
Go to the Pay section.
Under the "Compensation" section, click View compensation history.

Give an hourly employee an increase or decrease during a pay period

Increase pay

If your employee receives a raise in the middle of a pay period, you'll need to manually calculate the extra amount to add to the payroll to accommodate the increase.

Multiply their old hourly rate by the number of days in the pay period they worked at this rate.
Multiply their new hourly rate by the number of days in the pay period they worked at this rate.
Add together both rates to get their correct salary.
When you process payroll, add in the difference between their old salary and their correct salary to account for the raise.

Example: Aly makes $15 an hour. She's going to get paid October 14 for the period of October 1-7. She gets a promotion and a raise to $20 an hour effective October 5.

First, multiply $15 by the 32 hours she worked at that rate to get $480.
Second, multiply $20 by the 24 hours she worked at that rate to get $480.
Add the two rates together to get her total salary of $960.
When you process payroll, you'll see that her old payment is $840—calculate the difference between her old and new total salary, which is $120.
Enter $120 as the "Other Earnings" category in the payroll flow.

Decrease pay

If you need to decrease an employee's pay in the middle of a pay period, you'll need to manually calculate the amount to remove from the payroll to accommodate the decrease.

Multiply their old hourly rate by the number of days in the pay period they worked at this rate.
Multiply their new hourly rate by the number of days in the pay period they worked at this rate.
Add together both rates to get their correct salary.
When you process payroll, subtract the difference between their old pay and their correct pay to account for the decrease.

Understand the difference between gross pay and net pay

When it comes to payroll, two important terms to understand are gross pay and net pay.

Gross pay is the amount of money your employees receive before any taxes and deductions are taken out. For example, when you tell an employee, “I’ll pay you $50,000 a year,” it means you'll pay them $50,000 in gross wages.

Net pay is the amount of money your employees take home after all taxes and deductions have been taken out. This is the money they have in their pocket on payday.

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