How to Handle Payroll for Hourly and Salary Employees

Payroll is one of the most significant expenses for small businesses. It involves tracking time, classifying employees, collecting employee health insurance premiums and retirement contributions, and paying taxes.

Handling payroll can be complicated, so many businesses hire a payroll service like or an accountant to take it for them. But regardless of which approach you choose, you need to be able to manage your payroll correctly and accurately.


To make your payroll process more accessible and less costly, keep accurate time records for each employee. Whether you use time clocks, paper time cards, or an online timesheet tool, your company needs to track employees’ work hours each pay period.

The Fair Labor Standards Act requires you to maintain accurate records like timesheets for your hourly employees. You need to keep these records for at least two years, and saving them for three years is recommended.

If you have salaried employees, you must keep records of their working hours. This will help you determine if they are spending enough time on each job and not receiving overtime pay for their extra hours.

You can also track vacation and sick leaves using a timesheet. This can help you approve leave requests quickly and avoid any legal issues down the road.

In addition, employee timesheets can provide a way to monitor project progress and ensure deadlines are met. These records can also help managers decide how to allocate resources and manage project budgets.

In addition, if your employees work for multiple companies, timesheets can help you generate accurate invoices. For example, if an exempt employee spends 30 hours on a project for a law firm and 42 hours for an IT company, you can record this data and generate accurate invoices.

Payroll Schedules

Suppose you’re a business owner with hourly or salary employees. In that case, the frequency you pay them can significantly impact your budget and their ability to manage their finances. The key is balancing offering workers convenience while keeping payroll costs down.

You can choose from several pay schedules: weekly, biweekly, semimonthly, and monthly. Each has pros and cons, so you’ll want to consider your employees and their pay expectations before deciding.

A biweekly schedule pays employees every other week, customarily on a Friday. This is a good option for businesses with both salaried and hourly employees because it gives workers a clear understanding of when they’ll receive their next paycheck.

This schedule also helps regulate erratic timesheets and pay periods for hourly employees, who can often work more or less than 60 hours a week. However, it requires extra accounting work to ensure that payouts and costs align based on the months the pay stubs were issued.

This is a popular pay period for companies with hourly employees; it can help regulate their erratic schedules by ensuring they’re always paid on the same day of the month. It can also be helpful for businesses with more salaried employees who receive a paycheck once or twice a month.


If your business employs hourly or salary employees, it is essential to handle payroll taxes correctly. These payroll taxes are a set amount that must be withheld from your employee’s wages to pay for government programs and other expenses.

Depending on how you pay your employees, they may be subject to federal, state, or local payroll taxes. These taxes help financially support the American people by funding social insurance programs like Medicare and Social Security, public employee salaries, city construction, local parks, and other economic development efforts.

The key to running a successful payroll is understanding the difference between salary and hourly wages and knowing how to calculate gross wages. To determine a gross wage for an hourly employee, you need to multiply their pay rate by the number of hours they worked during the pay period. For a salaried employee, you need to multiply their annual salary by the number of pay periods they have throughout the year.

You should also keep track of overtime hours for hourly and salaried employees. Overtime is a form of additional pay you must pay your employees when they work more than 40 hours a week.

In addition to calculating the gross pay for your employees, you must withhold federal and state payroll taxes from their wages. Your business must fill out IRS Form W-4, Employee’s Withholding Certificate, for each new employee to determine how much federal income tax you must withhold. In some states, you must also withhold state income tax from your employee’s wages.


Whether you pay your employees hourly or salaried, it’s essential to understand how to handle payouts. Salary employees earn a fixed amount each pay period, while hourly employees are paid based on the number of hours they work during the month or pay period.

Salaried employees are typically the higher-paid workers within your company, and they have the advantage of having a guaranteed annual salary consistent throughout the year. This can make attracting more senior workers easier and stabilize your payroll costs.

Salary employees also benefit from healthcare and paid time off (PTO) benefits. However, these perks can be pricey and may only apply to some workers.

As an employer, you’ll need to record the total hours worked in each pay period so that your payroll team can calculate an employee’s hourly rate and pay them accordingly. This is especially important if you’re using a clock-in/clock-out system to track time on task.

As a business, you’ll need to ensure that your hourly employees are paid at least the federal or state minimum wage every hour. Under the Fair Labor Standards Act, this requirement is generally required for any hour worked more than 40 hours a week. If you need to figure out how much an hourly worker should be paid, check with your local labor board or a professional employer organization.

By Paul

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