In many cases, such as when a company is in financial trouble or when it has been purchased by a new company with different employment practices, the company will attempt to change workers from an annual salary to an hourly one. While workers may not approve of this change, it is usually legal.
Generally, companies are generally allowed to change the terms under which employees are employed. While only some contracts allow companies to summarily alter the compensation that an employee receives, in many cases employees are hired at will, meaning that they can be fired at any time, for nearly any reason. The company may fire the employees who receive a salary and then offer to rehire them at an hourly rate.
An employer cannot change an employee's compensation if the contract expressly forbids it. For example, many labor union members will have contracts that expressly state when and how the employer can change the terms of the contract. If the contract forbids modification, such as a change from salaried compensation to hourly compensation, the change is not legal.
If an employer changes the compensation structure from salary payment to hourly payment, he must abide by all laws that govern the hourly pay of employees. For example, employers must pay hourly employees a minimum wage and must pay them overtime for each hour that they work over 40 per week, at the rate of 1 1/2 times their hourly pay.
Exempt Vs. Nonexempt
According to Dr. Salary, jobs can be classified into main categories related to compensation: those that are exempt from hourly wage requirements and those that are nonexempt. Nonexempt employees are employees whose pay is governed by the Fair Labor Standards Act and who must be paid overtime and are subject to the minimum wage. However, many positions are exempt, such as most professional positions. A person who has an exempt position can be required to work an almost unlimited number of hours per week.
Read More: Overtime Guidelines by the Fair Labor Standards Act (FLSA) on Exempt vs. Non-Exempt
In some cases, being switched from a salaried position to an hourly position can be beneficial. While the employee is not guaranteed the same pay as he made previously, he will be well compensated if he is required to work more than 40 hours per week and will be assured of making the minimum wage.
- "An A-Z of Employment Law"; Peter Chandler; 2007
Michael Wolfe has been writing and editing since 2005, with a background including both business and creative writing. He has worked as a reporter for a community newspaper in New York City and a federal policy newsletter in Washington, D.C. Wolfe holds a B.A. in art history and is a resident of Brooklyn, N.Y.