Is it legal to go from salary to hourly?

The moment an employment structure shifts from a predictable salary to an hourly wage can be jarring, often sparking immediate questions about fairness, legality, and future earnings. This transition, where an employer moves an employee from a fixed annual or monthly compensation to one tied directly to time worked, is not uncommon in business restructuring or reclassification efforts. ^[2] Understanding the ground rules governing this change requires looking past simple shock and focusing on the underlying employment classification dictated by federal and state laws. ^[4]

# Status Change

The primary driver for switching an employee from salary to hourly often relates to their legal classification under the Fair Labor Standards Act (FLSA). ^[4] Salaried employees are frequently categorized as exempt from overtime pay requirements, meaning they receive a fixed salary regardless of the exact hours worked, provided they meet specific duties tests (e.g., executive, administrative, professional) and a minimum salary threshold. ^[6][4]

When an employer initiates a change to an hourly structure, it frequently signals a reclassification of that employee to non-exempt status. ^[2] Non-exempt employees, regardless of whether they are paid hourly or salaried, are entitled to overtime pay—time-and-a-half their regular rate—for all hours worked over 40 in a workweek, as mandated by the FLSA. ^[4][6] The switch to hourly tracking makes calculating this required overtime much more precise and auditable for the employer. ^[2] An employer might decide this reclassification is necessary to ensure compliance with overtime rules, especially if the employee’s duties have drifted away from the strict criteria required for an exemption. ^[4]

However, simply changing the pay method doesn't automatically change the legal status if the employee still meets the duties and salary tests for exemption under the FLSA. ^[2] If an employee was legitimately exempt and remains exempt under the FLSA criteria, an employer might still choose to pay them hourly to better align compensation with time worked, perhaps viewing them as a non-overtime-eligible hourly worker. This is where context becomes vital; if the change is made specifically to avoid overtime payments while the employee still performs exempt duties, legal complications can arise. ^[4][5]

# Overtime Rules

For employees newly switched to hourly pay, the most significant legal consequence revolves around overtime entitlement. ^[4] If the new hourly classification means the employee is now non-exempt, they must be compensated correctly for excessive hours. ^[4] The Department of Labor fact sheet on overtime clearly outlines that the regular rate of pay is used to calculate this premium, and it must be paid for time worked beyond 40 hours in the workweek. ^[4]

It is important to grasp that the regular rate of pay calculation can sometimes be more complicated than just dividing the former salary by 2080 hours (40 hours * 52 weeks). ^[4] The regular rate must account for all remuneration paid to the employee during that workweek, including any non-discretionary bonuses, commissions, or shift differential payments earned during that period. ^[4] If an employee earns a $1,000 salary and is then switched to an hourly rate structure, they need clarity on how their guaranteed weekly minimum will be established to ensure compliance with both minimum wage laws and potential overtime obligations. ^[2]

When considering this switch, one helpful way to analyze the shift is to determine the "break-even" point. If an employee previously earned a fixed salary of \60,000, that equates to roughly \28.85 per hour based on 2,080 hours annually. If the employer sets the new hourly rate at \25.00, the employee will immediately earn less unless they regularly work more than 43.4 hours per week (\60,000 / \25.00 = 2,400 hours, or 320 hours over 52 weeks, meaning 320 hours of overtime needed to match the original pay) [^3]. Conversely, an employer might set the hourly rate higher, say \35.00, which guarantees more pay for standard 40-hour weeks but means earnings are now capped by the hours logged. This is a fundamental difference: salary offers predictability for the employer's budget and the employee's income, whereas hourly introduces variable income based on recorded time. ^[9]

Is a salary or hourly rate better?

# Paycheck Effects

The most immediate effect of moving from salary to hourly is the loss of guaranteed pay for standard work weeks, assuming no corresponding change in the hourly rate that accounts for that loss of predictability. ^[2][3] Under a salary arrangement, if you complete your required work in 38 hours one week, you still receive your full salary. ^[6] Under an hourly structure, if you only work 38 hours, you are only paid for 38 hours, unless you are in a state that mandates a minimum daily or weekly reporting wage. ^[7]

When employees report this change happening suddenly, concerns about how the rate is calculated are paramount. ^[1][7] Some employers might attempt to convert the salary by dividing it by a standard 40-hour week, effectively paying the employee less for work they previously completed under the salary banner. ^[3] In some jurisdictions, an employer may have to provide advance notice of a reduction in pay rate, or the change might only become effective at the start of a new pay period. ^[7] If an employer cuts pay without proper notice, especially in states with specific paycheck laws, they could face legal scrutiny separate from the FLSA classification issue. ^[7]

For employees accustomed to the stability of a salary, adapting to the meticulous tracking required by hourly work can be an adjustment. Every minute must be accounted for, and working through lunch or staying late without clocking in can directly result in lost compensation. ^[1] This necessity for precise timekeeping is often one of the biggest culture shocks when an exempt employee becomes non-exempt. ^[2]

# Employee Actions

If your status is changed from salaried to hourly, proceeding cautiously is essential. Simply accepting the change without understanding the implications can lead to underpayment or unexpected financial instability. ^[5]

One important initial step involves reviewing your employment contract or offer letter, if one exists, to see what the terms state regarding compensation changes and notice periods. ^[7] While employment is often "at-will" in the United States, meaning the terms can change, specific state laws may dictate how much notice an employer must give before altering the rate of pay. ^[5]

Beyond reviewing documentation, an employee should immediately track their actual hours worked for several weeks prior to the change, if possible, to establish a baseline. ^[1] Then, compare the old total weekly earnings against the new potential earnings. If the new hourly rate, even with potential overtime, results in a net loss compared to the previous stable salary, it warrants a serious conversation with Human Resources or management. ^[3] For instance, if you were salaried and routinely worked 45 hours a week without extra pay, moving to a non-exempt hourly rate of \30/hour is financially better than your old salary (\60k/year equals about \28.85/hour, so the \30/hour rate provides a small bump plus overtime). ^[4] However, if the employer sets the new rate at $22/hour, you would need to work nearly 55 hours a week just to match your previous annual earnings, which is a significant lifestyle change. ^[3]

If you suspect the change is unlawful—perhaps you were wrongly classified as exempt previously and are now being paid less than minimum wage hourly, or the employer is failing to pay overtime—consulting with an employment lawyer becomes a prudent measure. ^[5] Employment attorneys are familiar with the nuances of state-specific wage and hour laws that can provide protections beyond the federal FLSA baseline. ^[5] The core takeaway is that while an employer generally can switch the pay structure, they must adhere to minimum wage requirements, overtime regulations if applicable, and any contractual or state-mandated notice requirements regarding compensation changes. ^[7][4]