How to Convert Employees from Hourly to Salary

As an employer, you may find yourself changing an employee from hourly to salary at some point. Learn why you might convert an hourly employee to salary and what steps to take when converting.

Reasons to convert hourly to salary

You can change an employee from hourly to salary for various reasons. Some reasons an hourly employee may convert to salary include:

• New position
• Promotion
• Additional responsibilities

Steps to convert an employee to salary

Changing from an hourly to salary wage is not difficult. But, employers should know what steps to follow when converting an employee to salaried.

1. Determine whether employee is exempt or nonexempt

An hourly position is considered nonexempt, while a salary position can be exempt. However, not all salary positions are exempt. When converting an employee from hourly to salary, follow the Fair Labor Standards Act (FLSA) guidelines to determine whether they are newly exempt.

Nonexempt employees have various regulations that don’t apply to exempt employees. You must pay nonexempt employees the federal minimum wage. And, nonexempt employees receive overtime wages if they work more than 40 hours per week. Check with your Wage and Hour District Office for more information about laws regarding minimum wage and overtime pay.

The FLSA does not protect exempt employees. Under FLSA, exempt employees are not eligible for overtime pay. Regardless of how many hours they work, exempt employees must receive the same amount of pay each period.

An employee generally must make at least $35,568 per year or $684 per week**, receive a salary, and have specific job duties to be considered exempt. Exempt job duties with high-level responsibilities include executive, administrative, and professional positions.

2. Factor in raises to hourly rate

Make sure to include raises when calculating hourly to salary wages.

For example, an employee earning an hourly rate of $14 receives a raise of an additional $2 per hour. Add the additional $2 to the employee’s hourly rate before converting to salary.

3. Update employee records

Update your employee payroll records with necessary changes. Contact your business’s HR department to inform them of any changes, if applicable.

4. Create a change from hourly to salary letter

Create a change from hourly to salary letter for your employee to sign. An hourly to salary letter shows the employee their previous pay, new pay, whether they’re exempt or nonexempt, and what the change means.

5. Change your payroll

Change your payroll to reflect the change from hourly to salary. If you use a time and attendance software, make sure you change the method of timekeeping for the employee.

Calculating hourly to salary

Now that you know your responsibilities regarding salary workers, it’s time to learn about calculating hourly to salary wages. Check out the salary wage calculation methods below.

Basic weekly hourly-to-salary conversion

With this conversion, you will calculate the salary rate based on a standard 40-hour workweek. If your business’s workweek is less or greater than 40 hours, use that number instead.

Here is the basic weekly hourly-to-salary formula:

1. First, multiply the hourly wage by the number of hours the employee works per week. In this example, the employee’s hourly rate is $15 per hour.

$15 per hour x 40 hours = $600 weekly

2. Take the weekly total from above and multiply it by the number of weeks in a year (52). Calculate the annual salary total.

$600 x 52 weeks = $31,200 per year

The weekly salary amount for this employee is $600. Their annual salary is $31,200.

Biweekly salary formula

If you pay an employee biweekly (every two weeks), then you can calculate their biweekly salary rate with the steps below.

1. Calculate the weekly salary rate by multiplying the employee’s hourly rate of $15 by the number of hours worked each week.

$15 per hour x 40 hours = $600 weekly

2. Multiply the weekly salary rate by the number of weeks in a year to get the annual salary rate.

$600 x 52 weeks = $31,200 annually

3. Divide the annual salary rate by 26 to get the biweekly salary rate.

$31,200 / 26 weeks = $1,200 biweekly

Semimonthly salary formula

Semimonthly employees are paid twice per month, like the 15th and 30th. They receive 24 paychecks per year (twice per month x 12 months). Calculate semimonthly salary rate with the steps below. Again, the employee receives $15 per hour.

1. Multiply the hourly wage by the number of hours the employee works per week to get the weekly salary rate.

$15 per hour x 40 hours = $600 weekly

2. Multiply the weekly salary rate by the number of weeks in a year to get the annual salary rate.

$600 weekly x 52 weeks = $31,200 annually

3. Divide the annual salary rate by 24 to get the semimonthly salary rate.

$31,200 / 24 weeks = $1,300 semimonthly

Monthly salary formula

Monthly employees are paid once per month (12 times per year). Use the steps below to calculate monthly salary, using an hourly rate of $15

1. Multiply the hourly wage by the number of hours the employee works per week to compute the weekly salary rate.

$15 per hour x 40 hours = $600 weekly

2. Multiply the weekly salary rate by the number of weeks in a year to get the annual salary rate.

$600 weekly x 52 weeks = $31,200

3. Divide the annual salary rate by 12 to get the monthly salary rate.

$31,200 / 12 months = $2,600 monthly

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This article has been updated from its original publication date of  November 21, 2018.

This is not intended as legal advice; for more information, please click here.