Before you officially launch your new business, you need to make sure you understand how payroll works. Payroll is an important step for small businesses, and it is not just one that you can ignore or overlook.

#1 Figure Out If You Want to Give Salaries or Pay Hourly

When you hire employees, you need to know how you want to pay them. Do you want to pay them by the hour? Or do you want to give them salaries?

The difference between hourly employees and salary employees is more than just the way you figure out their pay; it has legal implications as well. Certain types of salaried employees, who must meet specific salary requirements and job responsibilities, are exempt from earning overtime pay. Hourly employees earn the right to overtime pay if they clock in an excess of 40 hours over a predetermined seven-day time period. An accountant or business lawyer can help make sure that you are paying your employees correctly.

#2 Know How to Keep Track of Time for Hourly Employees

For your hourly employees, you need something more than the honor system to keep track of work time. You can use a sign-in and sign-out paper system. However, an electronic system is more accurate for keeping track of employees' times. Many employers use a system that looks like a security pad that employees can use to clock in and out of work. Other employers use a computer-based program to allow employees to clock in and out of work. The key is to find a consistent and reliable system for your business.

#3 Classify All Employees and Understand the Classifications

Next, you need to make sure you understand how all your employees are classified. This goes back to many ways to salaried and hourly workers. You need to know which workers qualify for overtime pay and which workers do not.

If you employ teenagers, you need to understand labor laws related to their employment. Teenagers can only work so many hours a week and oftentimes can only work certain hours of the day.

Make sure you understand all legal classifications and federal rules that apply to how you interact with and manage your employees. You need to have a strong understanding of this before you start your business.

#3 Establish Pay Periods and Communicate with Employees

Finally, you need to have established pay periods. Pay periods should not be a guessing game. Pay periods should be on a set schedule, such as every two weeks, or on a specific day.

Before you get started, you need to classify all your employees and figure out what type of payments you want to offer them. You need a timekeeping system for hourly employees that is easy to use and understand. Finally, be sure you establish a pay period schedule and communicate that with your employees.

Contact a company like Paystar Payroll for more information or assistance with payroll processing.