Accounting Best Practices, Fifth Edition

17–7. Switch to Salaried Positions

When processing payroll, it is evident that the labor required to process the payroll for a salaried person is significantly lower than the labor needed to process payroll for an hourly employee. The reason is that there is no change in the payroll data from period to period for a salaried person, whereas the number of hours worked must be recomputed for an hourly employee every time the payroll is processed. Therefore, it is reasonable to try to shift as many employees as possible over to salaried positions from hourly ones in order to reduce the labor of calculating payroll.

Implementing this best practice can be a significant problem. One issue is that it is not under the control of the accounting department—it is up to the managers of other departments to switch people over to salaried positions, so the controller must rely on persuasion of other managers to make the concept a reality. Another problem is that this best practice may be opposed by unions. They prefer to keep the employees they represent on hourly pay, since this gives employees the opportunity to earn overtime. If a union has a strong presence in a company, this will almost certainly keep a company from switching people to salaried positions for at least those employees represented by the union. Finally, there may be legal issues that interfere with conversion. There are frequently regulations at the state level that prohibit converting employees to salaried positions, with ...