What Is an Annualized Salary?

Annualized salary refers to a compensation method that allows employees to earn a fixed salary annually, regardless of the hours worked.

How to Calculate the Annualized Salary?

The calculation of the annualized salary depends on the number of hours in the employment contract between the employee and their employer.

For example, if the contract states that the employee will work an average of 30 hours per week, the employee must work a total of 1,560 hours on an annual basis (30 hours × 52 weeks = 1,560).

If the employee’s hourly wage is set at $20 per hour, the employee will receive a gross salary of $1,200 every two weeks.

How to Set Up Annual Salaries?

Employers who wish to implement annual salaries within their company should discuss this with their employees. If they accept, it is then necessary to have each of the members of the organization sign a new employment contract.

The conditions related to the annual salary must be recorded in an employment contract to be valid and enforceable. Examples of conditions include:

  • The terms of payment for overtime, if applicable.
  • The maximum number of hours worked annually.
  • The terms and conditions in the event of an insufficient number of hours worked.
  • The hourly wage based on the annual salary.

What Are the Advantages of Offering an Annualized Salary?

Benefits of offering an annualized salary include:

  • Offer better schedule flexibility based on traffic.
  • Avoid layoffs for economic reasons in the event of a decrease in traffic.
  • Reduce the use of hiring contract or seasonal employees.
  • Guarantee a fixed salary to employees.

Are Employees on an Annualized Salary Entitled to Paid Overtime?

Employees who are remunerated with an annualized salary are entitled to payment for hours of work that exceed the number of annual hours of work provided for in their contract. The terms of payment depend on the agreement between the employee and the employer.

What Is the Difference Between Annual Salary, Gross Salary, and Net Salary?

The annual salary of an employee refers to the sum of the pay of what an employee receives in a full year.

Gross salary of an employee refers to the sum of the pay given to an employee before withholding and deductions.

Net salary of an employee refers to the sum of pay given to an employee after withholding and deductions.

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