The first time you run payroll it feels like defusing something. Twelve tabs open, a calculator, a nagging sense you’re about to get a number wrong that matters. By the tenth time it’s a five-minute task you barely think about.
The difference isn’t experience. It’s knowing that payroll is the same six steps, in the same order, every single time. Learn the sequence once and the monthly panic just stops.
The short version
To run payroll: set up your tax accounts and employee paperwork, calculate each person’s gross pay, subtract withholding and taxes to get net pay, pay your employees, deposit and file the taxes you withheld, then keep the records. Steps one is a one-time setup. Steps two through six are the loop you repeat every pay period.
The six steps
1. Set up (you do this once)
Before anyone can be paid, you need a federal EIN, your state withholding and unemployment accounts, and a signed W-4 and I-9 for each employee. This is the part that takes real time, and it’s where most first-timers get tripped up.
What goes wrong: people handle the federal setup, skip a state account, and don’t find out until the first state deposit has nowhere to go. If you’re at this stage, work straight down the first-employee setup checklist so nothing gets missed.
2. Calculate gross pay
Gross pay is what someone earns before anything comes out. For hourly workers that’s hours times rate, plus overtime. For salaried workers it’s their salary divided across the number of pay periods in the year.
What goes wrong: overtime. Anyone who isn’t exempt has to get time-and-a-half over 40 hours in a week, and miscalculating it is one of the most common wage mistakes there is. Here’s how to calculate overtime pay without guessing.
3. Subtract deductions and taxes to get net pay
From gross pay you take out pre-tax deductions, then federal and state income tax withholding, then the employee’s share of Social Security and Medicare, then any post-tax deductions. What’s left is net pay, the number on the check.
What goes wrong: treating withheld tax as your money. It isn’t. You’re holding it to send to the government, which is exactly why the deposit step later matters so much. If the math here is fuzzy, gross pay to net pay explained walks through every line.
4. Pay your employees
Send net pay by direct deposit or check on your set payday. Your pay schedule (weekly, biweekly, semimonthly) determines how often this happens and needs to meet your state’s minimum pay-frequency rules.
What goes wrong: picking a schedule that’s convenient for you but doesn’t match state law, or one that makes overtime a headache. If you haven’t locked yours in, compare biweekly vs semimonthly first.
5. Deposit and file the payroll taxes
This is the step people forget, and it’s the expensive one. The taxes you withheld, plus the employer’s share, get deposited to the IRS and your state on a set schedule (monthly or semiweekly). Then you file returns: Form 941 each quarter and Form 940 once a year.
What goes wrong: missing a deposit deadline. The penalty climbs the longer it sits, and the money you withheld from employees carries personal liability if it goes unpaid. This is the whole story in what happens if payroll taxes are paid late.
6. Keep records and handle year end
Hold onto your payroll records, and at year end issue a W-2 to every employee and a 1099 to qualifying contractors. Good records here are what make an audit boring instead of frightening.
What goes wrong: misclassifying a contractor all year and generating the wrong form at year end. Get the W-2 or 1099 call right from the start.
Do you actually need software?
For one or two people with simple pay, you can run it by hand. For anyone else, payroll software earns its cost fast: it does the math, makes the deposits, and files the returns, which knocks out most of the mistakes that lead to penalties. What it won’t do is make the judgment calls, classifying workers, choosing a schedule, knowing your deadlines. Those stay with you, which is the honest answer to whether you can run payroll yourself.
Where to start
If setup is the wall you’re stuck at, that’s the most valuable place to get help. The training program takes you through the whole loop on real software until it’s routine, and if you’d rather have a second set of eyes on your first few runs, book a free intro call.
This is general education, not tax advice for your specific situation. Forms, thresholds, and deadlines change, so confirm the current requirements for your business and state.
Frequently asked
What are the steps to run payroll?
Set up your accounts and employee paperwork, calculate each person's gross pay, subtract withholding and taxes to get net pay, pay your employees, deposit and file the payroll taxes you withheld, and keep records for year end. The same six steps repeat every pay period.
Can I run payroll without a payroll service?
You can, but for more than a person or two it's rarely worth the risk. Payroll software calculates withholding, makes your tax deposits, and files the returns, which removes the errors that cause most penalties. Doing it fully by hand is possible but leaves the hardest parts on you.
How long does it take to run payroll once it's set up?
Once setup is done and you're using software, a routine pay run for a small team is usually a matter of minutes: enter or approve hours, review the run, and submit. The time cost is almost entirely in the first setup, not the recurring runs.