Summary
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 pay a one-time additional earnings paycheck, process an off-cycle payroll or bonus payroll instead.
Learn about the different employee classification options and how to change them.
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.
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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.
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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.
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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."
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Commissions and other types of additional compensation can be added each time payroll is run.
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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.
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.
When you update default hours, this amount will automatically appear for your salaried employee every time you run payroll. Updating default hours will not change the employee’s gross pay per pay period—this is useful if your employee does not work a standard 40-hour workweek.
Note: The default hours you add will be per workweek.
Add default hours for salaried employees
- 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 salaried employees, 40 hours will be defaulted into payroll.
- Click Save.
The next time you run payroll, your employee's default hours will be entered automatically.
Important: You can change this amount while running payroll if your employee worked more or less than the default number of hours set, however adjusting a salaried employee's hours while running payroll will also adjust the employee's wages.
Admins with the required permissions can edit the hours for salaried employees in payroll.
Adjusting a salaried employee's hours while running payroll will also adjust the employee's wages.
- Sign in to Gusto.
- Click the Pay section and select Run payroll.
- Click Run payroll.
- Next to the employee, click the hours.
- Adjusting the hours here will impact the employee's wages.
- If you want to update a salaried employee’s hours without affecting gross pay, follow the instructions in the Default hours for salaried employees section to update their default hours before running payroll.
- Enter the updated amount.
- Finish running payroll.
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.
If your employee regularly receives additional compensation, like tips or commission, you can add it to their profile so you do not have to enter it each time you run payroll.
To add a recurring payment to an employee’s payroll:
- Sign in to Gusto.
- Go to People.
- Click the employee’s name.
- Under Information, click Pay.
- Scroll down to Additional earnings, and click Add.
- Select the earning type from the dropdown.
- Enter the additional amount they earn per pay period.
- Click Save.
We’ll add this amount to all future regular payrolls.
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.
- Specific 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".
- Enter their salary adjustment in one of the following ways:
- 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.
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.
If your employee receives an increase or decrease in pay in the middle of a pay period, you must manually calculate the amount to add/deduct to/from the employee's earnings in payroll to accommodate the salary change. Once you have the new amount, you can zero out their hours in the next payroll, and add the new amount as a correction payment.
Consult a CPA with any questions about the method outlined below (for both increases and decreases), as several methods may be acceptable depending on your specific situation.
In the example calculation below, Aly is making $50,000 a year when she gets a raise to $55,000 a year. She's paid every other week on Friday. Her raise is effective in the middle of the pay period, on a non-payday Friday.
| Divide their annual salary by the number of pay periods in a year.
| Aly makes $50,000 a year and is paid every other week. | $50,000/26 = $1,923.08 |
| Divide the amount they're paid in a period by the number of days in a period to calculate their old daily rate. | Aly makes $1923.08 for 14 days worked. | $1923.08/14 = $137.36 |
| Repeat the steps above to find your employee's new daily rate. | Aly now makes $55,000 a year. Her new daily rate is $151.10. | $55,000/26 = $2,115.38. $2115.38/14 = $151.10 |
| Add the number of days at the old rate with the number of days at the new rate to get the total salary for the pay period. | Aly worked 7 days at $137.36 a day. She worked 7 days at $151.10 a day. Her total salary for the pay period is $2,019.22. | $137.36 x 7 = $961.52 $151.10 x 7 = $1,057.70 $961.52 + $1,057.70 = $2,019.22 |
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.