How to Handle Payroll for Hourly vs. Salary Employees?

Posted In | Human Resources | HRMS | Payroll

Payroll management can be complex, especially when dealing with different types of employees, such as hourly and salaried workers. Each type of employee has unique payroll requirements, and understanding these differences is crucial for ensuring accurate and compliant payroll processing. In this article, we will discuss the key differences between hourly and salary employees and provide guidance on how to handle payroll for each type of worker.


1. Understanding the differences between hourly and salary employees

Hourly employees are paid based on the number of hours they work, with their pay rate determined on an hourly basis. They are generally eligible for overtime pay when they work more than a specific number of hours per week, as defined by the Fair Labor Standards Act (FLSA) or applicable state laws.

Salary employees, on the other hand, receive a fixed annual salary, regardless of the number of hours they work. They are typically exempt from overtime pay requirements, provided they meet specific criteria related to job duties, salary level, and salary basis under the FLSA.


2. Tracking time for hourly employees

Accurate time tracking is essential for managing payroll for hourly employees. Businesses should implement a reliable time and attendance system to ensure that employee hours are accurately recorded and reported. This can help prevent payroll errors, such as underpayment or overpayment of wages, and ensure compliance with overtime regulations.


3. Calculating overtime pay for hourly employees

Hourly employees are generally entitled to overtime pay when they work more than 40 hours per week, or as defined by applicable state laws. Overtime pay is typically calculated at one and a half times the employee's regular hourly rate. When processing payroll for hourly employees, businesses must accurately calculate and include overtime pay in their paychecks.


4. Managing payroll for salary employees

When processing payroll for salary employees, businesses should ensure that the employee's fixed salary is accurately reflected in their paychecks. Salary employees are generally paid on a more consistent basis than hourly employees, often receiving the same paycheck amount each pay period.


5. Handling deductions and benefits for both hourly and salary employees

Both hourly and salary employees may be eligible for various deductions and benefits, such as health insurance, retirement plans, or paid time off. When processing payroll, businesses must accurately calculate and apply these deductions and benefits to each employee's paycheck, regardless of their employment status.


6. Compliance with wage and hour laws

Businesses must ensure that their payroll practices comply with federal, state, and local wage and hour laws, which may differ for hourly and salary employees. This includes adhering to minimum wage requirements, overtime regulations, and record-keeping requirements. Regularly reviewing and updating your payroll policies can help ensure compliance and avoid costly fines and penalties.


7. Providing pay stubs and payroll records

Both hourly and salary employees are entitled to receive pay stubs and access to their payroll records. Businesses must provide this information in a clear and understandable format, detailing the employee's pay rate, hours worked, deductions, and other pertinent information.


Handling payroll for hourly and salary employees requires a thorough understanding of the differences between these types of workers and the unique payroll requirements for each. By implementing accurate time tracking, calculating overtime pay, managing deductions and benefits, and ensuring compliance with wage and hour laws, businesses can effectively manage payroll for both hourly and salary employees. By prioritizing accurate and compliant payroll practices, businesses can maintain employee satisfaction and minimize the risk of costly payroll errors.