Payroll

Payroll is the process businesses use to calculate employee pay, withhold taxes and deductions, and issue wages for each pay period. It also includes the records employers keep to document how employees were paid.

Running payroll usually starts with gathering information such as hours worked, salary, overtime, commissions, bonuses, paid time off, and other earnings. From there, the employer calculates gross pay, applies required taxes and other deductions, and determines each employee's net pay.

Payroll also includes employer responsibilities beyond the paycheck itself. Businesses may need to deposit payroll taxes, file federal and state tax forms, report new hires, maintain wage and hour records, and provide employees with documents such as pay stubs and Form W-2.

Accurate payroll matters because even a small mistake can affect an employee's paycheck, tax withholding, benefits, or overtime. Employers also need to keep up with federal, state, and local requirements for minimum wage, overtime, pay frequency, deductions, and tax reporting.

Businesses may manage payroll themselves, use payroll software, or work with a payroll provider. The right approach depends on the size of the workforce, how employees are paid, where they work, and how much payroll administration the business wants to handle internally.

Frequently asked questions

What does payroll include?

Payroll can include employee wages and salaries, hours worked, overtime, bonuses, commissions, taxes, benefits deductions, retirement contributions, garnishments, paid time off, and net pay. It also includes the tax filings and payroll records connected to those payments.

What is the payroll process?

The payroll process generally involves collecting employee time and earnings information, calculating gross pay, withholding taxes and deductions, determining net pay, paying employees, and completing the required tax deposits and reporting.

What is the difference between gross pay and net pay?

Gross pay is the total amount an employee earns before taxes and deductions. Net pay is the amount left after those amounts are taken out and is what the employee ultimately receives.

How often is payroll processed?

Payroll schedules vary by employer. Common options include weekly, biweekly, semimonthly, and monthly pay, although state laws may limit which schedules employers can use.

Can a business outsource payroll?

Yes. Businesses can use payroll software or work with a payroll provider to help calculate pay, process tax filings and deposits, maintain records, and manage other payroll tasks.