Calculating Hours-Based Taxes for Salaried FLSA Exempt Employees

Overview

This article explains how to correctly configure a salaried employee marked as FLSA Exempt so that hours-based taxes — such as the Oregon Workers' Benefit Fund tax (OR WBF) — calculate correctly on payroll without disrupting the employee's salary. Use this guidance when a salaried employee is subject to a tax that requires reported hours.

The Configuration Dilemma

Salaried employees are typically marked as FLSA Exempt so their salary calculates correctly. However, certain taxes — such as OR WBF — are calculated based on hours worked. If an employee has no hours recorded, these hours-based taxes will not calculate.

This creates a common configuration problem:

  • Marking the employee as FLSA Exempt preserves the correct salary but prevents hours-based taxes from calculating.

  • Marking the employee as FLSA Non-Exempt causes the hours-based taxes to calculate, but the salary calculates incorrectly (typically at a lower amount).

Solution — Enable Track Clock Hours on the Employee

Keep the employee marked as FLSA Exempt so the salary continues to calculate correctly, and enable Track Clock Hours from the Exempt menu on the employee's pay info tab. This allows the system to record hours for the employee even though they are salaried, so hours-based taxes such as OR WBF can calculate.

How to Configure This Setting

  1. Open the employee record.

  2. Navigate to the employee's pay info tab.

  3. Confirm the employee is marked as FLSA Exempt.

  4. From the Exempt menu, select Track Clock Hours.

  5. Save the employee record.

  6. On the next payroll, verify that the salary calculates correctly and that hours-based taxes such as OR WBF now calculate as expected.

When to Use This Setting

Use this configuration when:

  • A salaried employee is marked as FLSA Exempt and is subject to an hours-based tax (for example, OR WBF).

  • Hours-based taxes are not calculating for the employee because no hours are being reported.

  • Switching the employee to FLSA Non-Exempt causes the salary to calculate incorrectly.

Key Takeaways

  • Hours-based taxes (such as OR WBF) do not calculate for salaried employees marked as FLSA Exempt unless hours are being tracked.

  • Switching the employee to FLSA Non-Exempt to force hours-based taxes to calculate typically breaks the salary calculation.

  • The recommended solution is to keep the employee as FLSA Exempt and enable Track Clock Hours from the Exempt menu on the pay info tab.

  • This configuration preserves the correct salary while allowing hours to be recorded so hours-based taxes calculate properly.