Payroll

Payroll is the process of compensating employees for their work. It includes calculating wages, withholding taxes, issuing payments, and reporting to government agencies. It’s one of the most critical functions in any business, both financially and legally.

How Payroll Works

1. Employee Setup

• Collect W-4 forms (for tax withholding)

• Set pay rates, schedules, and benefits

• Classify workers correctly (employee vs. contractor)

2. Time Tracking

• Record hours worked (for hourly staff)

• Track PTO, sick leave, and overtime

3. Gross Pay Calculation

• Multiply hours worked by hourly rate, or use salary amount

• Add bonuses, commissions, or reimbursements

4. Deductions & Withholdings

• Federal and state income tax

• Social Security and Medicare (FICA)

• Benefits (health insurance, retirement plans)

• Wage garnishments (if applicable)

5. Net Pay

• What the employee actually receives after deductions

6. Payment

• Issue pay via direct deposit, check, or payroll card

7. Reporting & Filing

• Submit payroll taxes to IRS and state agencies

• File quarterly and annual reports (e.g., 941, W-2, W-3)

8. Recordkeeping

• Maintain payroll records for compliance and audits

Quick Tip

If you’re paying people for their work, even family, you need a payroll system. It’s not just about writing checks; it’s about staying compliant and protecting your business.