August 19, 2022
In the United States, the workforce is always experiencing change. Whether it’s due to unforeseen circumstances like a global pandemic or predictable cycles like seasonal work, there’s always an ebb and flow that comes with employment on a national scale.
This is especially true when looking at the numbers for hourly employees. According to the most recent statistics from the Bureau of Labor Statistics, there were an estimated 73.3 million workers age 16 and older in the United States paid at hourly rates in 2020. Hiring hourly employees is beneficial to many businesses, but also comes with unique challenges - like figuring out PTO.
Salaried vs. Hourly
To understand how PTO works for part-time and full-time hourly employees, it’s important to know the difference between full-time, salaried employees and hourly workers.
Of course, the biggest distinction between these two categories of employment is the number of hours worked in a week. The Bureau of Labor Statistics classifies anyone who works more than 35 hours a week as a full-time employee. Anyone who works less than that is identified as a part-time employee.
This employee classification is important because full-time employees are often entitled to more benefits, like insurance. Additionally, full-time employees are typically salaried (receiving a set amount of compensation for the year), while part-time employees are paid an hourly rate. However, it is possible that full-time and part-time employees may both be paid hourly.
Understanding these distinctions can help you make the best hiring decisions for your business in the long run.
While businesses can take some liberties with defining full-time and part-time employees, the Fair Labor Standards Act does outline hard and fast rules when it comes to some classifications.
Namely, hourly employees are often classified as nonexempt and are subject to overtime provisions. Nonexempt employees must receive overtime pay for hours worked over 40 per workweek (any fixed and regularly recurring period of 168 hours – seven consecutive 24-hour periods) at a rate not less than one and one-half times the regular rate of pay.
Benefits of Hiring Hourly Employees
Hiring part-time or regular full-time hourly employees can be beneficial for many businesses. Here are some reasons why you may consider hiring hourly employees over salaried.
With hourly employees, you can easily adjust schedules to accommodate busy or slow seasons. If you operate a business that experiences drastic shifts in demand, like construction, restaurants or bars, or retail, paying employees hourly is a good idea for better controlling costs.
Salaried employees are paid their base salary no matter their productivity. For instance, if there’s no work to do they still receive a paycheck. Hourly employees, on the other hand, are only paid for the hours worked during a pay period. This means you can change schedules to ensure you’re not over- or under-staffed at any given time.
Typically, hourly workers are part-time employees (though, as we said, that’s not always the case). Part-time employees aren’t entitled to extra benefits and this can help you keep costs low in the long run. This is especially true for small businesses who want to attract more employees without having to offer a robust benefits package.
It’s easy to measure productivity with hourly employees. When you want to optimize your workforce, you can measure employee contribution based on their time present on the job. This can help you better prepare schedules or even consider bringing on hourly employees full-time.
Challenges of Hiring Hourly Employees
Of course, hiring hourly employees doesn’t come without challenges. Here are some of the drawbacks of hiring an hourly team.
As mentioned, most hourly employees are entitled to overtime pay at a higher rate if they work more than the standard 40 hours per week. If your business suddenly experiences more demand, high turnover, or sick employees that require overtime work you can be paying more in the long run.
Learning how to effectively schedule hourly employees is key to keeping costs down.
It can be more difficult to retain employees in hourly positions. As the experts at Forbes explain, a part-time job may not attract senior employees who want autonomy, stability, and more benefits.
Hourly positions are often viewed as temporary rather than somewhere a professional can grow their career. By offering some fringe benefits, like paid vacation time and flexible hours, you can make the position more appealing.
While there are ways to control costs with hourly employees, there’s also less predictability when it comes to budgeting. With a salaried workforce, you have a good idea of your labor costs every pay period. However, this can shift drastically with hourly employees.
In some cases, like if you’ve reduced costs, this can be beneficial. But other times, like when overtime was worked, labor costs can be higher than anticipated.
Do Hourly Employees Receive PTO?
If you do have hourly employees at your business, one thing to figure out is if they’re entitled to PTO. What you may not realize is that the FLSA does not require payment for time not worked, such as vacations, sick leave or federal or other holidays. This is true for both salaried and hourly employees.
Vacation days and sick days are completely optional and are matters of agreement between an employer and an employee. But just because you don’t have to offer PTO to hourly employees doesn’t mean you shouldn’t.
Here are some reasons why you should consider offering PTO to hourly team members:
- According to recent research, the majority of American workers say it’s very important employers provide paid vacation time (76%), paid sick time (74%), and paid holidays (74%).
- PTO can be a great way to distinguish your company and attract and retain top talent in the long run.
- Having a paid time off policy can help you better schedule your hourly employees since you will know their vacations in advance.
- PTO promotes a healthy work-life balance, which can help reduce stress and improve productivity at work overall.
How to Calculate Paid Time Off for Hourly Employees
Since the standard vacation time for hourly employees depends entirely on the business, there’s no one-size-fits-all way to calculate it. Of course, there are some things to keep in mind. According to the BLS, the average amount of PTO days in America is 10 days each year (not including sick days or paid holidays). So this can be a good place to start.
Figuring out PTO for hourly employees is very similar to what you would offer salaried employees. In addition to vacation time, you may want to offer PTO for:
- Sick days
- Personal holidays
- Bereavement leave
Depending on where your business operates and how many employees you have, you may be required to offer sick leave.
Accrued vs Annual Time Off
After determining how many days of PTO you will offer, you should determine if it will be accrued or annual PTO.
Accrued PTO is also known as earned paid time off. It’s when employees earn PTO based on hours worked or other time-based criteria. Annual PTO, on the other hand, is when employees are given a set amount of PTO at the start of the year rather than having to earn them.
Whether your business offers PTO in bulk or PTO accrual to hourly employees is up to you. Unlimited PTO is also becoming increasingly popular, but this is often a benefit for full-time, salaried employees.
What to Include in a PTO Policy for Hourly Employees
Like for salaried employees, you should also include some strict rules in your PTO policy for hourly employees. This can include things like:
- A deadline for requesting PTO
- What PTO can and can’t be used for
- How PTO is accrued or given
- How unused PTO will be reimbursed
- If PTO is on a first-come first-served basis of seniority
Using a Time Clock to Track PTO
With a clear PTO policy for hourly workers in place, it’s time for calculations. Rather than relying on manual mathematics, a time clock can help you best calculate paid time off your hourly employees (and even salaried employees at the same time!).
With PayClock, employees can record their time and view their time card data on demand using an online time clock, mobile smartphones, a Lathem digital time clock, - or all three. Now, you have the ability to manage employee time and attendance from any location and at any time.
Lathem's PayClock employee time and attendance system works with numerous types of PTO policies. No matter if you have salaried employees, hourly employees, or a mix of both you can seamlessly track their attendance and calculate their PTO and overtime hours.
Learn more about how a time clock can help you figure out PTO for all your employees and streamline payroll processing.