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Why most household employees should be paid hourly instead of a fixed salary

We break down the Department of Labor tests so families know whether overtime is required or not

Why most household employees should be paid hourly instead of a fixed salary

Many of us are paid a set salary at our jobs – meaning we earn the same pay each pay period regardless of how many hours we work. So it’s understandable that when you’re looking to hire a nanny, senior caregiver or other household employee, you may assume they can be paid a set amount weekly or bi-weekly. But what you may not realize is that the Department of Labor (DOL) sets specific guidelines to determine whether an employee can be paid a fixed salary or if they must be paid hourly.

What does the law say about paying in-home caregivers hourly or salary?

The Fair Labor Standards Act (FLSA) classifies most household employees as non-exempt workers, which means they are protected by minimum wage and overtime laws. Since overtime kicks in for most household employees after 40 hours worked in a 7-day workweek, an hourly rate of pay must be established to ensure families don’t accidentally exclude overtime from their caregiver’s pay.

How can you tell if an employee is exempt or non-exempt from overtime?

The FLSA has several exempt employee tests you can use if you think your caregiver can qualify as a salaried employee. As previously mentioned, most household employees do not meet these tests, but they’re worth going over.

  • Administrative exemption – Your employee is not an office worker who can make decisions on their own without asking your opinion.

  • Professional exemption – Your employee does not work in a field that requires advanced knowledge of science or learning that took them years of specialized instruction to become skilled at.

  • Computer employee exemption – Your employee is not a computer programmer, systems analyst or software engineer.

  • Executive exemption – Does your employee primarily focus on managing a business, manage at least two other employees and do they have the ability to hire and fire? Some personal assistants or estate managers do fit this description, but nannies and senior caregivers do not.

  • Highly-compensated employee exemption – If your employee earns $107,432 or more and performs any of the other duties listed above, they can be exempt from overtime.

Even if my household employee is an hourly worker, can I still offer a salary?

Technically, yes, but you need to be very careful. “If a set salary is paid each week and your employee’s hours frequently fluctuate, it’s as if your employee is making a different hourly rate each pay period,” says Tom Breedlove, Sr. Director of Care.com HomePay. “Instead, you should take the salary amount you were planning to offer your employee and turn it into an hourly rate based on the number of hours you expect them to work each week.”

For example, if you’ve budgeted to pay your nanny about $500 per week before taxes and you expect them to work about 35 hours per week, you can offer to pay your nanny $14 per hour. Now that there is an established hourly rate, it does not matter how many hours your nanny works; they will be compensated fairly. You should also include language in your nanny contract stating that if your nanny crosses into overtime, they will be paid $21 per hour for all hours worked over 40 hours during the workweek.

It’s understandable that thinking through your care budget and communicating with potential new caregivers is easier when you’re focused on a set salary. But it doesn’t take much work to convert salary dollars into an hourly rate. And you’ll have piece of mind knowing that you’ve reduced the risk of making a payroll mistake by not accounting for overtime.

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