Running payroll involves more than sending employees their paychecks. You have to calculate wages, account for taxes and deductions, pay employees the correct amount, and submit payroll taxes by the required deadlines.
That may sound like a lot when you’re doing it for the first time. But once you have the right information and follow the same process each pay period, payroll becomes much easier to manage.
This guide explains how to run payroll step by step for a US business, with a focus on employers handling the process themselves for the first time.
Before You Start
Before processing your first payroll, make sure the basic setup is complete.
Your business will need an Employer Identification Number (EIN) from the IRS. You may also need to register for state payroll and tax accounts in each state where you employ workers.
Next, decide how you want to handle payroll. There are a few common options.
A very small business may choose to calculate payroll manually. This keeps software costs down, but it also means your team is responsible for calculations, tax deadlines, filings, and recordkeeping.
HR & Payroll software can take over much of that work by calculating wages and deductions, organizing payroll information, and helping with tax filings. As your workforce grows, software can also make it easier to manage a larger number of employees.
Another option is outsourcing payroll to a provider or working with a PEO, which handles more of the administrative work for you.
Whichever approach you choose, the overall payroll process stays largely the same. The main difference is how much of each step you complete manually.
Step 1. Collect Employee Information
Start by gathering the information you need for each employee.
New employees generally complete Form W-4 so you can determine federal income tax withholding. They also complete Form I-9 to document their authorization to work in the United States.
You will also need payment details. If employees are using direct deposit, collect the required banking information. If someone will receive a paper check, record that payment method instead.
Make sure workers are classified correctly from the beginning as well. For example, determine whether someone should be treated as an employee or an independent contractor. For employees, you may also need to identify whether a role is considered full-time or part-time under your company’s policies and applicable rules.
These distinctions can affect payroll, benefits, taxes, and other employment requirements, so it is better to sort them out before the first paycheck is processed.
If you’re trying to understand how employers typically define part-time work, our guide on how many hours is a part-time job explains what to consider.
Step 2. Choose a Pay Schedule
Pick how often you pay. The four common options in the US:
| Frequency | Paydays Per Year | Best For |
|---|---|---|
| Weekly | 52 | Hourly teams and industries with variable hours |
| Biweekly | 26 | The most common US schedule; balances admin and cash flow |
| Semimonthly | 24 | Salaried teams paid on fixed dates like the 15th and last day |
| Monthly | 12 | Lowest admin load, but harder on employees managing cash |
Your choice affects cash flow, admin load, and what employees expect. Some states set minimum pay-frequency rules by industry, so check yours before you lock one in.
Step 3. Calculate Gross Pay
Gross pay is the amount an employee earns before taxes or other deductions are taken out.
For hourly employees, start by multiplying the number of hours worked by the hourly rate. If the employee qualifies for overtime, hours worked beyond 40 in a workweek are generally paid at 1.5 times the regular rate under federal rules. Some states have additional overtime requirements.
For salaried employees, the calculation is usually simpler. Divide the annual salary by the number of pay periods in the year. For example, someone paid biweekly would typically have 26 pay periods. Our guide on how salary pay works explains the process in more detail.
Step 4. Work Out Withholdings and Deductions
Once you know the gross pay, you can calculate what needs to come out of the employee’s paycheck.
This can include federal income tax based on the employee’s W-4, plus state or local income taxes where required. You also need to account for FICA taxes, which cover Social Security and Medicare. Both the employer and employee contribute.
Other deductions may include health insurance premiums, retirement plan contributions, or wage garnishments.
Keep in mind that employers have costs of their own as well. These may include the employer portion of FICA, unemployment taxes, and workers’ compensation coverage.
Workers’ comp costs are not the same for every employee. Rates can depend on factors such as job type, payroll, and risk classification. Our guide on how workers’ comp is calculated for employees explains what can affect the premium.
Step 5. Calculate Net Pay
Net pay is what remains after all employee deductions have been taken from gross pay.
In other words, this is the amount the employee actually receives.
For example, if an employee earns $2,000 in gross pay and has $450 in taxes and other deductions, their net pay would be $1,550.
Check the numbers carefully before finalizing payroll. A small mistake here can affect the amount that reaches an employee’s bank account.
Step 6. Pay Your Employees
Once payroll has been reviewed, send employees their net pay on the scheduled payday.
Payment may be made through direct deposit, paper check, or another approved method. Employees should also receive a pay stub showing how their paycheck was calculated.
A typical pay stub lists gross wages, taxes, benefit deductions, other deductions, and net pay. It gives employees a clear record of what they earned and what was taken out.
Step 7. File and Pay Payroll Taxes
Withholding payroll taxes is only one part of the process. You also need to send those taxes to the appropriate government agencies.
That means remitting the amounts withheld from employees along with any employer taxes your business owes. Federal tax deposits may follow a monthly or semiweekly schedule depending on the IRS requirements that apply to your business.
There are also recurring payroll forms to file. Form 941 is generally filed quarterly, while Form 940 is filed annually. Employers also prepare W-2 forms for employees at the end of the year.
Deadlines matter. Late deposits or filings can lead to penalties and interest. Our payroll compliance checklist can help you keep track of recurring payroll responsibilities throughout the year.
Step 8. Keep Payroll Records
Do not treat payroll as finished once employees have been paid.
Keep organized records of employee hours, wage rates, payroll calculations, tax payments, filings, and pay stubs. Federal rules require employers to retain many payroll records for at least three years, while certain tax documents may need to be kept longer.
Good records make it much easier to answer employee questions, prepare for tax season, and respond if your payroll records are ever reviewed.
Doing It Yourself vs. Using Software
Manual payroll can be manageable when you have only a few employees and a straightforward pay structure.
That can change quickly.
Add more employees, multiple pay rates, benefits, overtime, or workers in different states, and there are more details to track each pay period. A spreadsheet that worked for three employees may become difficult to manage with 20.
Payroll software takes over much of the repetitive work. It can calculate wages and deductions, organize payroll records, and, depending on the platform, help handle tax payments and filings.
The right point to switch depends on your business. Many companies move away from manual payroll once the process starts taking too much time or becomes difficult to manage accurately.
Frequently Asked Questions
How often do I file payroll taxes?
The schedule depends on the type of tax and the requirements that apply to your business. Federal payroll tax deposits are commonly made monthly or semiweekly, while Form 941 is generally filed quarterly. Form 940 and employee W-2s are handled annually.
Can I run payroll myself?
Yes. A small business with a few employees and simple payroll may be able to manage the process internally. As your team grows or payroll becomes more complex, software or a payroll provider can reduce the amount of manual work involved.
What happens if I get payroll wrong?
Payroll mistakes can lead to incorrect paychecks, tax penalties, interest, and extra administrative work. You may also need to issue corrected payroll records or repay employees if they were underpaid.
How long does it take to run payroll?
It varies with the size and complexity of the business. A small company using payroll software may be able to complete a routine pay run fairly quickly once everything is set up. Manual payroll generally takes longer because calculations, reviews, tax payments, and recordkeeping need to be handled separately.
Build a Payroll Routine You Can Repeat
Payroll becomes easier when you follow the same process every pay period.
Start by confirming employee and timekeeping information. Calculate gross wages, apply the correct taxes and deductions, review the results, pay employees, and then complete the required tax and recordkeeping tasks.
Software can automate much of that work, but the basic sequence does not change.
The goal is not to reinvent the process every payday. It is to create a routine your team can follow consistently, so payroll stays organized, accurate, and on schedule.
