How to Run Payroll for a Small Business: A Step-by-Step Guide

Why payroll feels hard at first

Payroll combines paying people on time with withholding the right taxes and keeping records you may need years later. Most of the stress comes from not knowing the order of steps. Here is that order.

Step 1: Get your employer registrations in place

In the US, employers generally need an Employer Identification Number (EIN) from the IRS, and usually state registrations for income tax withholding and unemployment insurance. Requirements vary by state, so check your state's labor and revenue department websites.

Step 2: Collect new-hire paperwork

Before the first paycheck, collect the documents you need from each employee.

• Form W-4 for federal withholding
• Form I-9 to verify work eligibility
• Any state withholding form your state requires
• Direct deposit details, if you pay that way

Step 3: Choose a pay schedule

Common schedules are weekly, every two weeks, twice a month, and monthly. Some states limit which schedules you can use, so confirm the rules where your employees work.

Step 4: Calculate gross pay, deductions, and net pay

Gross pay is hours times rate (or salary per period). From that you subtract taxes and any deductions such as benefit contributions to reach net pay. This is the step where software saves the most time and reduces mistakes.

Step 5: Pay employees and file

After paying employees, employer tax deposits and filings follow their own deadlines. Missing these is where penalties usually come from.

Step 6: Keep records

Keep payroll records, timesheets, and tax filings organized. Many businesses use payroll software so records sit in one place.

Doing it yourself vs. using payroll software

Manual payroll can work for one or two employees, but it takes time every pay period. Payroll tools such as Gusto are designed to handle calculations, filings, and records together. Compare plans and features to see whether one fits your business.

Frequently asked questions