Calculating Labor Costs for Salaried Employees

How to Calculate Labor Costs for Salaried Employees

Accurately calculating labor costs for salaried employees can be pretty tricky. Take into consideration the facts that salaried employees often are not scheduled, are not required to clock in, and can have differing hours from day to day or week to week. Simply dividing employees’ annual salaries by 52 may not be an accurate way to calculate their weekly labor costs. When things like paid and unpaid time off come into play, everything gets complicated.

Labor variance is calculated by comparing the budgeted labor cost to the actual labor cost, or the schedule to the actual attendance. Problems arise when trying to calculate labor variance for salaried employees because they may or may not be scheduled (budgeted); may or may not clock in and out (showing actual attendance); may take paid or unpaid time off; and, because of their flexible hours and fixed pay rate, it may be impossible to accurately calculate how much they are making per hour per pay period. Extreme fluctuations in labor variance can reflect poorly on the person doing the budgeting and can mean trouble if the IRS comes to audit because labor costs are not being accurately tracked.

TimeForge is aware of the potential problems associated with calculating labor costs for salaried employees and offers several options to customize the process and help make it both easier and more accurate. TimeForge allows each employee’s pay rate to be input as hourly, daily, weekly, biweekly, monthly, quarterly, annually, or per shift. All options besides hourly and per shift come with additional options. TimeForge will automatically calculate an approximate hourly rate in order to provide real-time labor analytics for each position that has a pay rate set to anything besides hourly or per shift. A box titled “Don’t Export” will also appear, which can be checked to keep employees’ salaried position information from being exported with the rest of payroll. If it is desirable to export employees’ pay or hours, two more boxes appear with the options to enter either a fixed rate or a fixed number of hours to export each payroll period. If all options are left blank, the pay rate and scheduled hours will all be exported with payroll, just like hourly employees’ pay. For salaried employees with weekly pay rates, a box titled “Recalculate Cost” will appear with the other options. Checking this box will overrule the calculated hourly rate and ensure that the weekly rate is paid, regardless of how many hours were worked (if salaried employees are clocking in). For example, if a salaried employee’s weekly pay rate is $1,000, but only one hour is worked, then TimeForge will recalculate the hourly rate and pay the employee $1,000 for that one hour of work. Additionally, if the salaried employee does not clock in, an option exists to copy the employee’s schedule to the attendance nightly.

Although these customizations are helpful, the most accurate way to calculate labor costs for salaried employees may still be unclear. The best way, within TimeForge, depends completely on whether or not salaried employees clock in and out and how each manager wants to factor labor costs for salaried employees into their theoretical and actual labor. Like many other parts of labor management, there is no “one size fits all” configuration for all customers, so TimeForge offers options that allow managers to handle salaried employees the ways they want. However, a common configuration for calculating the labor costs of salaried employees that don’t clock in is to check the “Don’t Export” box for any salaried positions and then to create a mock employee and name it something like “salaried employees”. Set the pay rate to be the combined pay rates of salaried employees. (Make multiple mock employees for multiple pay rates.) Add the mock employee to the schedule for the projected number of hours salaried employees will be working during the scheduled period. Salaried employees are now technically scheduled (budgeted), and can be clocked in and out with customizable attendance, all managed independently of the salaried employee’s actual hours. The pay and hours are now both being tracked, but salaried employees have retained the perks associated with being on salary. Since TimeForge charges per active employee, there will be a small fee associated with creating a mock employee, but in comparison to the massive fees that can be charged by the IRS for not tracking salaried employees’ wages at all, the fee is minimal. Although this configuration is fairly common and usually works well with salaried employees that do not clock in, it is not ideal for every employer, which is why TimeForge offers so many customizations.

To set up salaried employees, navigate to the “Employees” page.

Log in, hover over “Employees”, and select “Employees”.

Add or edit an employee.


1. Edit an existing employee


2. Add a new employee.

Locate the “Employee Positions” box.

Select the appropriate position for the salaried employee.

Input the salaried pay rate.

Input the salaried employee’s salary and select the frequency of payment.

Select the account type and overtime rules.

Select an established account type if you wish to group the cost of the position’s attendance. Select the established overtime rules you would like to apply to the employee’s position.

Notice the “Hourly Rate” box.

The “Hourly Rate” box displays an approximate hourly rate in order to provide real-time labor analytics for the position. It can be adjusted.

If the employee’s pay frequency is weekly, notice the “Recalculate Cost” box.

Check the “Recalculate Cost” box if you would like the employee’s calculated hourly rate to be recalculated according to their weekly rate, regardless of the number of hours worked. (The hourly rate is calculated based on a 40 hour work week. If the employee works more or less than 40 hours and the attendance for the employee is being tracked, checking this box will ensure a standard weekly pay, regardless of hours.)

Select a skill level.

Apply a skill level to the employee’s position, if desired.

Decide whether you would like to export this employee’s salary information or not.

Check the “Don’t Export” box if you do not want this employee’s salaried position information to be exported with the rest of payroll. Or, input a fixed pay rate or fixed number of hours to be exported for this employee’s position each pay period.

Copy the schedule to the attendance, if desired.

At the bottom of the “Basic Employee Information” box (on the same page as the “Employee Positions” box) is an option to copy the employee’s schedule directly into the attendance. This option is useful for employees that do not clock in. You can schedule them a reasonable number of hours and have that schedule automatically copied into their attendance, which can be adjusted as needed.

Click “Save” or “Add This Employee”.

Scroll down and click “Add This Employee” if you are adding a new employee, or “Save” if you are editing an existing employee.

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We are one year into it now, well past being enamored with the newness. We are married to TimeForge. It's as essential to us now as any of our management tools today, and we very happy about that.- Steve @ Hermosa Cyclery
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