How to run payroll: one payday from hours to deposit

What one payday covers

A payday is one cycle. It is not the stack of forms from before anyone started. It is not the choice between software and an accountant. Those jobs sit on other pages. This page is the run itself, in the order you do it.

The accounts have to exist before this run. Hiring your first employee is that list. It covers the federal employer number, the state accounts, and Form W-4. Form W-4 is the Employee’s Withholding Certificate. It sets federal income-tax withholding. An employer identification number, or EIN, is the nine-digit tax ID the IRS assigns to a business. The IRS is the Internal Revenue Service, the federal tax agency. This page starts after those accounts are open.

How to pay employees is the handoff of the money, including direct deposit. Employer payroll taxes percentage is the share you add on top of wages. This page puts those pieces in payday order.

How does payroll work for a small business

Payroll for a small business is the same loop each payday. You count the work. You turn that work into gross pay. Gross pay is wages before taxes. You withhold the worker’s taxes. Withholding means money you take out of pay and send to a tax agency. You add the taxes that are yours. You pay the worker the remainder. You hold the tax money until the deposit day. Later you file the returns that report what you already sent.

The loop does not change shape because the shop is small. One worker and a small crew use the same federal steps. What changes is the state. One state takes income tax from the check. Another does not. The state pages hold those differences. Do not paste one state onto another.

The payday, from hours to the deposit

Do the run in this order. A skipped step is how the deposit comes up short.

1. Count the hours for this pay period. A pay period is the stretch of days this check covers. Write down the hours and the pay rate. The DOL is the U.S. Department of Labor, the federal labor agency. Fact Sheet #21 is the DOL sheet on records under the FLSA. The FLSA is the Fair Labor Standards Act, the federal wage-and-hour law. That sheet, and 29 CFR Part 516, say you keep hours worked and the rate of pay for workers the law covers. Overtime is extra pay after 40 hours in a workweek for a covered worker who is not exempt. The DOL Handy Reference Guide says that extra pay is at least one and one-half times the regular rate. A workweek is the fixed seven-day stretch you chose. It is not the calendar week unless you chose that. This page does not list who is exempt. Read that guide before you skip the extra half.
2. Turn the hours into gross pay. If the worker is paid by the hour, multiply the hours by the rate and add the overtime you owe for that workweek. If the worker is paid a salary, use the salary that belongs to this pay period. Add any other wages you are paying on this payday, such as a bonus you chose to include now. That total is gross pay.
3. Withhold the worker’s taxes. Take federal income tax from Form W-4. Publication 15 (Circular E) is the IRS Employer’s Tax Guide. It says to keep a Form W-4 on file for each employee. The dollar amount comes from Publication 15-T, the withholding tables Publication 15 points to. If a new employee does not give you a 2026 Form W-4, Publication 15 says to treat the person as single, or as married filing separately, with steps 2, 3, and 4 left blank. Then take Social Security tax and Medicare tax. For 2026, Publication 15 sets Social Security at 6.2 percent of wages, up to $184,500 for that employee. Medicare is 1.45 percent of wages, with no wage cap. Also withhold Additional Medicare Tax, an extra 0.9 percent, on wages you pay that employee above $200,000 in the year. You do not match that extra 0.9 percent. Withhold state income tax only if that state taxes wages. The rate and the form come from that state. Form W-4 does not set them.
4. Add the taxes that are yours. You owe another 6.2 percent for Social Security, up to the same $184,500, and another 1.45 percent for Medicare. That match stays off the paycheck. You may also owe federal unemployment tax. Publication 15 calls it FUTA. FUTA is the Federal Unemployment Tax Act. Only you pay it. For 2026 the rate is 6.0 percent of the first $7,000 of each employee’s wages. If you pay state unemployment tax in full and on time, a credit can cut that by as much as 5.4 percent. The rate after that full credit is 0.6 percent. A state on the IRS credit-reduction list can shrink the credit. Read the Form 940 instructions before you use 0.6 percent. State unemployment tax is a separate bill. Use the rate on the notice from that state. Do not take a number from a software ad.
5. Pay the worker the net amount. Net pay is gross pay minus the taxes you withheld. The employer share is not subtracted a second time. Pay that net amount on the payday you set.
6. Hold the tax money, then deposit it. The withheld taxes and your matching Social Security and Medicare are not spending money. A deposit is the payment of that money to the IRS. Publication 15 says you pay it by electronic funds transfer. EFTPS is the Electronic Federal Tax Payment System, the free IRS payment system. The EFTPS page says a new enrollment can take up to five business days. Enroll before the first deposit is due.

The deposit day is not always the payday. Publication 15 uses two schedules. A monthly schedule depositor sends the month’s taxes by the 15th of the next month. A semiweekly schedule depositor follows the payday more closely. Wages paid on Wednesday, Thursday, or Friday are due the next Wednesday. Wages paid on Saturday, Sunday, Monday, or Tuesday are due the next Friday.

Which schedule you use depends on a lookback. For 2026, Publication 15 looks at the Form 941 taxes you reported from July 1, 2024, through June 30, 2025. Form 941 is the quarterly federal payroll tax return. If those taxes were $50,000 or less, you deposit monthly. If they were more than $50,000, you deposit semiweekly. A first-time Form 941 filer treats the quarters before the business started as zero, so the first calendar year is monthly.

Two dollar tests can move that plan. If these taxes hit $100,000 on any day, Publication 15 says you deposit by the next business day. You then deposit on the semiweekly schedule for the rest of that year and the next year. If the quarter’s Form 941 tax is under $2,500, and you did not hit that $100,000 rule, you may pay with a timely filed return instead of depositing during the quarter. If you are not sure the quarter will stay under $2,500, you can still use that choice when the prior quarter was under $2,500 and you stay under the $100,000 rule. The percentage guide walks the line numbers.

Keep a record of the run: hours, rate, gross pay, each withholding, net pay, and the deposit. Publication 15 says to keep employment tax records at least four years. Fact Sheet #21 says payroll records last at least three years, and time cards plus wage-rate tables last at least two years. Keep both clocks. Use the longer one for that record.

A monthly payroll schedule versus weekly or biweekly

A payroll schedule is how often the worker gets paid. A monthly payroll schedule pays once a month. Weekly pays every week. Biweekly pays every two weeks. Semimonthly pays twice a month, often on two set dates. The steps above stay the same. Only the gap between runs changes.

That schedule is not the IRS monthly deposit schedule. The pay schedule is when the worker is paid. The deposit schedule is when you send the tax. You can pay every week and still deposit monthly. You can pay once a month and still owe a semiweekly deposit if the lookback is over $50,000.

The FLSA does not pick weekly, biweekly, or monthly. The Handy Reference Guide says wages the Act requires are due on the regular payday. It does not set how far apart those paydays may be. A state can require you to pay more often than once a month. The DOL payday chart was last revised January 1, 2023. The Labor Department says to confirm the rule with the state labor office. Hiring your first employee walks that chart. Do not copy one state’s payday gap onto another state. The state pages here are the tax accounts. They are not a second copy of that chart.

How to run payroll yourself

Doing the run yourself means you still own the list when software does the arithmetic. By hand, you use Publication 15 and Publication 15-T for the dollars. With software, you still enter the hours, keep Form W-4, and use the rate on the state notice. Publication 15 says you stay responsible if a payroll service misses a deposit or a return. A login is not a state tax account.

Can I do my own payroll? is the choice between doing the run by hand, using software, or hiring an accountant. This page does not make that choice. The run is the same list either way.

The methodology page explains the three grades. Gusto is one plain link. Patriot is the other service on this site.

The returns that follow the payday

A deposit does not file the return. You still file. If the due date is a Saturday, Sunday, or legal holiday, the IRS employment-tax due-dates page says you may file on the next business day.

Form 941 reports the quarter’s withheld income tax and the Social Security and Medicare tax, including your share. File it by the last day of the month after the quarter ends: April 30, July 31, October 31, and January 31. If you deposited the quarter in full and on time, you may file by the 10th of the second month.

Form 940 is the annual FUTA return. It is due January 31. If you deposited the FUTA tax on time, you get 10 more days. FUTA also has a deposit rule during the year. Figure it each quarter. If the quarter’s FUTA tax, including any amount carried forward, is over $500, deposit it by the last day of the next month. If it is $500 or less, carry it to the next quarter. If the fourth quarter is still $500 or less, you may pay it with Form 940.

In January, give each employee Form W-2. Form W-2 is the wage and tax statement. File those W-2s with Form W-3, the transmittal, at the SSA by January 31. The SSA is the Social Security Administration. File through Business Services Online, the SSA’s employer filing system. The IRS depositing page says an employer that files 10 or more information returns must file them electronically. Count the W-2s with the other information returns.

The IRS may tell you in writing to file Form 944, the annual employment tax return, instead of Form 941. Publication 15 says to file Form 944 only after that written notice. Until the notice arrives, file Form 941.

State withholding and state unemployment tax are a second calendar. They do not ride on Form 941.

State clocks that still start from payday

The federal run is the same list. The state amount on the check is not.

Texas, Florida, and Washington do not take state income tax off the paycheck. You still withhold federal income tax, Social Security, and Medicare. Texas still bars a deduction of the unemployment contribution from wages. Florida still bars taking reemployment tax from wages. Reemployment tax is Florida’s name for the employer unemployment tax. Washington’s quarterly report still asks for hours.

New York still uses Form IT-2104 for state withholding on the check. Illinois still wants Form IL-W-4, then Form IL-941 for the quarter. Georgia still wants Form G-4 before state withholding. North Carolina still wants Form NC-4, Form NC-4 EZ, or Form NC-4 NRA. A federal Form W-4 does not replace those state forms.

Pennsylvania withholds a flat 3.07 percent for the state. Local earned income tax is a second amount on the same payday, paid to a local collector. Ohio withholds state income tax, and school district tax can share that state account. City income tax is a separate account. Do not treat Pennsylvania’s local tax as Ohio’s city tax.

California starts a clock because you paid wages. If you pay more than $100 in a calendar quarter, you have 15 days to register with the Employment Development Department, the state payroll-tax office. A federal deposit does not open that account.