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The Key Components to Setting Up Payroll: Part 5.4 – Payroll Policies, Pay Type

6 mins read

This article is written to provide the reader with an understanding of what a Salary and Hourly pay type is.

Previously, we discussed the importance of classifying positions in your company to ensure individuals who fill a vacant position are compensated equally, meaning everyone who is under the same employment classifications (i.e. permanent full-time or temporary full-time) are paid accordingly.

In this article we are going to continue to build on equal pay as it applies to salary and hourly pay types when setting up Payroll. The difference between salary and hourly pay is fairly straightforward, however, keep in mind that payroll policies will vary depending on your business’s industry, the positions you employ, and your company’s payroll policies.

Salary Paid is defined as a fixed payment for a defined period of time which is paid to a person for their work or services rendered, which is averaged by the company’s pay frequency and paid out. These employees are in an agreement that regardless of the hours worked, they will receive the same fixed income each pay.

For example, John Smith is paid an annual base salary of $80,000 and the company’s pay frequency is semi-monthly. This means, regardless of the hours worked, John will receive a base salary of $3,333.33 each pay, before mandatory statutory deductions, which will be discussed in Part 6 of this series.

To expand on this, salary paid employees are still held to a standard work schedule and are generally overtime exempt, which we will discuss in part 5.4 of this series.

So, what positions are generally paid an annual salary?

Generally, those who are salary paid are employed for the long-term and work in an Executive, Management, or Professional* position in an office environment.

Professionals by Employment standard’s definition is open to interpretation, as they use the general guideline that a professional is someone who works in an office setting and holds a professional designation such as an Accountant, Lawyer, Engineer, Psychologist, Doctor, Teacher, etc.

In Human Resources, the definition is quite different and is more inclusive. The term professional is extended beyond those who have a professional designation. Since there is no clear definition used cross-industry, we are going to define professionals as “Persons who conduct business in an office setting and are characterized by or conforming to the technical or ethical standards of a profession”.

This definition is inclusive to all positions which are based in an office environment, including those which may not be professionally designated such as Administration, Design, Environmental, Health & Safety, Human Resources, Information Technology, Procurement, Supply Chain, etc.

Hourly Paid is defined as a position that is paid on the actual hours worked during a defined period of time for the work or services rendered by an employee. Generally, employees who are hourly paid are overtime non-exempt, meaning they are eligible to receive overtime pay.

If a business wants more of its employee’s time, they are required to pay the employee accordingly, unlike salary paid employees who are in an agreement that they are paid a fixed amount each pay period.

So, what positions are generally paid an hourly wage rate?

It is common belief that only episodic employees (i.e. temporary) are hourly paid, however, this is not always the case especially in instances where an individual is not employed in an Executive, Management, or Professional* position such as Technicians, Nurses, Trades Workers, or other Skilled workers such as Bakers, Chefs, Servers, or Bartenders (to name a few).

It is important to remember that each industry and company conduct business differently, which is why we recommend that your business should clearly define these pay types across the board with the positions it employs, so Payroll knows how each position (or employee) is paid with each pay period.

Download the The Key Components to setting up Payroll: Part 5.4 – Payroll Policies, Pay Type (pdf).

Now that we understand the differences between salary and hourly pay types, stay tuned for part 5.5 of this series when we discuss Standard Work Schedules.

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