Mid-level employees up through executives may be accustomed to an employment arrangement involving an annual salary, rather than hourly wages. Yet an hourly compensation scheme does not necessarily imply low wages. Independent contractors might be paid hourly, but at a rate of hundreds of dollars per hour.
An employment agreement generally includes material terms like employment status, benefits, and wages or salary. Even for minimum-wage workers, the compensation scheme is generally mentioned — provided that those workers executed an agreement in the first place.
The employment classification is important to mention because the compensation arrangement may implicate federal employment laws. For example, the Fair Labor Standards Act requires employers that have at least $500,000 in hourly sales to pay overtime to hourly employees. Smaller businesses that are nevertheless engaged in interstate commerce may also be subject to the FLSA.
The FLSA also establishes the federal minimum wage for hourly employees. Of course, state laws may also set benefits above the national standard. In that regard, a recent article noted that 13 American states have plans to raise their minimum wages in 2014.
According to a recent estimate by the U.S. Department of Labor, the FLSA may affect over 130 million American workers. Indeed, many businesses rely on a workforce comprised of independent contractors, hourly and salaried employees. As a result, it is essential for employers to have employment agreements that set forth all material terms, including compensation. When employment laws change, such as the minimum wage, it is important to update employment agreement templates for compliance with current law.
Source: USA Today, “13 states raising pay for minimum-wage workers,” Paul Davidson