How to Calculate Payroll for Exempt Employees

By Grace Ferguson
Payroll, Exempt Employees
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Under the Fair Labor Standards Act, executive, administrative, professional and outside sales workers, as well as some computer employees, are exempt from minimum wage and overtime compensation. Exempt employees cannot be paid less than $455 per week on a salary basis, or $27.63 per hour on an hourly basis. Calculating payroll for exempt employees is different from figuring payroll for nonexempt employees.

Pay exempt (salaried) employees a set wage each pay period. Generally, exempt employees’ wages stay the same each pay date. For instance, say the salaried employee’s salary per pay period is $2,000; if you are using payroll software, you need to enter his annual salary only once. The payroll system will figure his wage per pay period, automatically paying this amount each pay period. Still, during payroll processing always print pre-processing reports to ensure exempt wages are being generated correctly.

Prorate exempt employees’ pay, if applicable. Typically, a salaried employee’s pay is prorated if he has been hired or terminated after the start of the pay period being processed. To prorate his pay, determine his daily rate. For example, say the employee was terminated during the pay period but worked only three days out of the pay period. Figure his daily rate and multiply it by the number of days he worked to arrive at his total gross compensation.

Example: $55,000 (annual salary) / 26 (biweekly pay periods) / 10 (days) = $211.54 (daily rate).

Dock an exempt employee’s pay if he is not at work for one or more days and if the cause is not because of illness or disability; if he takes more vacation, personal or sick days than allowed based on company policy; to offset military pay, or jury duty or witness fees; for penalties charged because of the violation of significant safety rules; or for unpaid suspensions caused by conduct violations. Ensure you are making the deductions properly because the employer can lose the exemption if it makes a habit of improperly deducting exempt employees’ pay.

Pay the exempt employee for a full day even if he arrives to work late or leaves early. If he performs no work in a given workweek, you do not have to pay him for that week. You do not have to pay him for unpaid leave taken under the Family and Medical Leave Act (FMLA).

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