Calculating Hourly Pay

I am needing assistance with calculating hourly pay rates and how many decimel places should be used. We are finishing a classification and compensation study. Our pay plan lists annual salary ranges for positions (i.e. staff account, civil engineer, etc.)


1. Do you calculate hourly rates different for exempt and non-exempt positions? If so, what is the formula?(Annual salary / # hours worked = hourly rate)

2. Does law or payroll practices require we use two or four decimel places to calculate? Ex: Salaried Staff Account with a $34,400 salary has an hourly rate in our payroll system of $16.5384. I want to enter this amount. Our budget guy wants us to enter two decimel places because it is easier - say 16.54 hourly rate and annual salary of 34,403.20. Some employees may make more and other less based on rounding.

I prefer not to conform operational practices to budget processes. However,I am not familiar with the details of payroll law and practices, but I want our practices to be right - operationally. I have suggested changing our pay plan to have hourly rates so there would be no differences, but the budget guy doesn't want to. Any guidance or references in calculating hourly rates would be greatly appreciated. Thanks (in advance) for your time and response. Have a great day!

Kevin B.


  • 3 Comments sorted by Votes Date Added
  • I am unaware of any specific laws on how far to carry the decimal. I imagine the DOL would come down hard on any company that promised an hourly employee a certain amount per hour and then paid the employee short every pay period because you rounded to zero decimals. I am sure 2 decimals is acceptable.

    We carry it 2 places when doing the budget and entering rates of pay on our payroll system. However, I have noticed the computer system keeps track of partial cents as occassionally an hourly employee will get paid an extra cent (which I assume occurs due to partial hours and overtime).

    Also, our system is difficult to work with as far as exempt employees go. So we take their annual rate and divide it by 2080. Sometimes they end up with a little more, and sometimes a little less (ie: $35,000 per year = $16.83 per hour = actual annual of $35,006.40). When processing payroll, a total of 80 hours (active or leave) must be entered regardless of actual hours worked.

    I hope someone else can chime in who will be more helpful.

    Good luck!

  • Thank you so much for your reply. A part of me is saying that this is not worth the effort to research. However, when HR publishes an annual salary, that's in fact what they should be paid through payroll. Not a penny more or less. Thanks again for your reply.

    Have a great day!
  • KEVIN B:
    I recommend that you make contact with your local Federal Wage and Hour folks and have them send you a copy of the FLSA. I have one and it is all scared up from years of use and other notes beyond the normal everyday rule of proceedures.

    The short answer is: yes, you do treat them differently for calculation of their compensation. There is no calculation for the EXEMPT employee for regular days and hours. A true EXEMPT employee is paid his annual compensation as weekly, Bi-Weekly, or monthly; it remains the same for all hours worked, regardless of the actual number of the hours worked.

    We have the computer set-up to record in three digits because that is the way that our 401K is set-up. You may choose to use any number of decimals that your accounting department chooses for HR (PAYROLL) to use so that financial information is consistent over the long run with all other accounting system. In the end payroll and all other business expense must come together and be compatable.

    The budget process is always in gross compensation figures for the year. We know from past history how much money it cost to run our business with cost centers identified. Payroll should be computed based on $s and not hours to be worked. For instance: It cost $5461.00 to run a single production unit to meet their production goal for one 6 day work week. This is averaged by all other similar work units and then calculated as 52 weeks, which gives me $283,972.00 as payroll budgeted cost.

    My actual cost for the last year was actually greater for last year, therefore, I might want to look more closely at the components that made up this suggested/wished for amount of operating funds. What caused any work unit to show up as costing more than the allocated budget dollars?

    I hope this helped.

    Pork, sometimes known as Richard of this forum!!
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