A salary is a form of compensation in which a worker is paid on a regular, periodic basis for services rendered.

A salary differs from a wage in that a salary is paid on a regular interval (i.e. bi-weekly or monthly) as opposed to a unit of work (an hour). The salary evolved as a form of compensation to fill the need for office workers and middle-management, whose work is vital to the operations of a business and whose time cannot be allocated to predetermined tasks easily. These employees have jobs comprised of several tasks and projects that are difficult to value or measure independently.

A salary is the most widely used form of compensation for employees whose contributions to the business are too complex to schedule based on the performance of a simple task at a set time, but not critical enough to warrant ownership in a business. Employers tend to pay salaries to employees whose jobs require flexibility in both hours worked and the tasks performed.

Salary as a form of compensation for services rendered first became regulated in the United States in 1938, as part of the Fair Labor Standards Act (FLSA). The FLSA mandated a Federal Minimum Wage for all hours worked by US employees, as well as mandatory time-and-a-half (150% of the regular wage) for hours worked in excess of forty hours per week. By law, wage-based employees must be paid at a rate equal to or higher than the Federal Minimum Wage and compensated at time-and-a-half for overtime. In addition, posters explaining the FLSA must be displayed to employees in a business’ common area(s) (such as a cafeteria or break room) so that employees are aware of the laws that protect them.

In addition to regulating the lowest wage allowed by law, the FLSA also defined which employees’ roles within a business may garner a salary versus those which must be paid in wages. The US Government determines which roles are exempt from the FLSA.

The government determines which roles are exempt from the FLSA in order to prevent businesses from hiring all employees as salaried workers and forcing those employees to work in excess of 40 hours, thereby receiving unpaid labor. While the list of exempt roles has changed a few times since 1938, the exempt roles always have been ones in which the employees’ tasks were vital to the business, could not be scheduled, and meet a minimum pay standard. Currently, the roles exempt from the FLSA are:

• Executive
• Administrative
• Professional
• Outside Sales
• Information Technology

Exempt status is determined by job description—not by job title. Several businesses have tried to make non-exempt employees, such as an Inside-Sales Representative, appear exempt by changing the title of the position to an exempt position (e.g. Sales Executive) in a practice known as employee misclassification. This practice is in violation of the FLSA and businesses that engage in it are subject to penalties by the US Department of Labor and/or its employees.

According to the Department of Labor’s Wage and Hour Division:

The Department of Labor may recover back wages either administratively or through court action, for the employees that have been underpaid in violation of the law. Violations may result in civil or criminal action. Employers may be assessed civil money penalties of up to $1,100 for each willful or repeated violation of the minimum wage or overtime pay provisions of the law and up to $11,000 for each employee who is the subject of a violation of the Act’s child labor provisions. In addition, a civil money penalty of up to $50,000 may be assessed for each child labor violation that causes the death or serious injury of any minor employee, and such assessments may be doubled, up to $100,000, when the violations are determined to be willful or repeated. The law also prohibits discriminating against or discharging workers who file a complaint or participate in any proceeding under the Act.

Due to the potential exposure to legal action, Salary.com recommends all business owners discuss their compensation policies with Human Resources professionals and Employment Attorneys.

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