You most likely get paid in one of two ways: a salary (a fixed amount of compensation paid out in regular intervals) or hourly (a wage per hour). About 55.7% of all workers in this country are paid hourly, meaning they qualify for overtime pay if they work more than 40 hours per week (salaried employees are “exempt” from this rule and don’t get overtime pay if they work more hours).
Still, many folks prefer salaried positions, which are usually seen as more secure, and which usually come with more benefits and advancement opportunities. But there are legal limits when it comes to classifying employees: If you make less than $43,888 a year, you’re legally non-exempt according to the federal government and get overtime pay (this is going up to $58,656 starting January 1st, 2025—note that states may have their own laws, so a little research is necessary here). For some companies, it makes more sense to re-classify their employees as non-exempt and pay them hourly than to give them a pay bump in order to keep them exempt.
Generally speaking, your employer can change how they pay you (and how much they pay you) any time they like, as long as they give you notice and aren’t being discriminatory about it. So if your boss tells you that starting next week you’re an hourly instead of a salaried employee, they’re probably allowed to do that. And while you have limited options in this scenario, there are a few things you can—and should—do.
Keep a copy of the notice you received about the change, and record or take notes at every meeting or phone call you engage in discussing your new pay and benefits. If it all works out you might not need any of this, but if you enter a dispute over pay or begin to suspect you were singled out in retaliatory fashion for the change (e.g., no one else in your group was changed to hourly), you’re going to want a record of everything you were told.
Figure out if the switch to hourly work is a stealth pay cut. Will you still be working at least 40 hours a week? Will you actually work overtime? If you currently work 40 hours a week, you can divide your former annual salary by 2,080 (40 hours X 52 weeks) to see what your hourly rate was (e.g., if you made $60,000 a year and worked 40 hours a week, your hourly rate was 60,000/2080 = $28.85). If you worked 35 hours, divide by 1,820 (35 X 52).
If your new hourly rate is lower and there’s no overtime pay involved, you just received a pay cut, and you should ask your employer to raise it.
You also need to check your benefits. When an employee is switched to hourly pay, their employer can opt to keep them at the same level of benefits as before, but it’s worth making certain of this. If the change in status means you’re no longer eligible for employee health plans or retirement plans, or if your benefits options change drastically as a result of the change, you may have just lost a big chunk of your compensation even if your annual pay remains the same. Calculate how much your benefits package was worth before and compare it to your new situation. If you’ve lost out, see if you can go back to your previous package, or if you can be compensated for the loss.
On the other hand, if you’re a non-exempt employee now, you can work overtime—and if you do, your overall income might actually go up. If you routinely worked extra hours as a salaried employee, speak with your supervisor to find out if you’ll be expected/allowed to continue to do so. If your hourly rate matches what you were making while working as an exempt employee and your benefits are comparable, you basically just got a raise—assuming your overtime continues.
If your new compensation represents a pay cut and/or a loss of benefits, you might consider quitting. While your employer can probably change your pay any time they want, they can’t do so retroactively, and they can’t force you to accept a new pay rate. Any work you’ve already done must be paid at your old rates. Quitting might be a good idea if you’re reasonably sure you can get a comparable job, because you can base your salary request on your previous salary and not your new, lower pay.
