How to Run Payroll: The Complete Guide

A payroll run is a controlled sequence, not a single software command. Begin with an approved employee roster, pay period, pay date, time, rates, earnings, benefits, deductions, tax forms, work locations, and prior corrections. Calculate gross wages, taxable wages by tax, employee withholding, employer taxes, deductions, reimbursements, and net pay. Review control totals and exceptions before releasing funds. After payday, reconcile bank activity, payroll liabilities, tax deposits, benefit payments, returns, wage statements, and the general ledger.

This guide is part of Steady’s Payroll, W-2 & 1099 library. It explains the federal workflow in practical terms, but the correct result still depends on the payment year, entity, worker relationship, filing method, and state rules.

The answer in context

Cutoff protects the calculation

Set deadlines for time, new hires, terminations, rate changes, bonuses, commissions, benefits, garnishments, leave, and bank changes.

Pay period and pay date differ

Hours belong to the covered period, while tax liability and year-to-date reporting generally follow the pay date.

Gross pay needs earning detail

Regular, overtime, salary, commission, bonus, tip, leave, retroactive, and fringe-benefit codes can use different rules.

Each tax has its own wage base

Federal withholding, Social Security, Medicare, FUTA, state withholding, unemployment, local taxes, and benefits should not share one assumed taxable wage.

Net pay is not the control total

A correct net amount can hide wrong gross wages, taxes, deductions, employer costs, or year-to-date balances.

Negative and zero checks matter

Voids, reversals, benefit adjustments, taxable fringes, and corrections can affect filings without a normal employee payment.

Payment release and approval should be distinct

Where staffing permits, separate data entry, payroll calculation, final approval, bank release, and reconciliation.

Post-payroll work closes the run

A payroll is incomplete until payments settle, deposits and returns are tracked, accounting is posted, and exceptions are resolved.

Step-by-step workflow

1. Open the payroll calendar. Confirm entity, pay group, period, pay date, funding date, holidays, agency deadlines, and responsible users.
2. Freeze employee changes. Validate hires, terminations, rates, tax forms, bank accounts, addresses, work locations, benefits, leave, garnishments, and status changes.
3. Approve time and earnings. Reconcile scheduled employees, hours, overtime, tips, commissions, bonuses, expenses, paid leave, and manager approvals.
4. Calculate gross pay. Apply wage agreements, salary periods, overtime, retroactive adjustments, minimum wage, and other applicable rules.
5. Calculate taxes and deductions. Use current federal, state, and local rules, year-to-date wage bases, employee elections, benefit plans, and legal-order priorities.
6. Review the preview. Compare headcount, checks, gross, taxable wages, taxes, deductions, net, employer cost, direct deposits, and prior-period trends.
7. Resolve exceptions. Investigate missing employees, unexpected zeros, negative checks, large changes, tax overrides, blocked accounts, and bank validation alerts.
8. Approve and release. Obtain documented approval, submit direct deposits or checks, fund tax and benefit accounts, and lock the final register.
9. Post accounting. Record wages, employer taxes, deductions, liabilities, cash, clearing, departments, jobs, and provider fees with a balanced entry.
10. Reconcile and close. Match bank settlements, tax deposits, benefit payments, payroll liabilities, returns, notices, and year-to-date continuity.

Worked example

A 17-employee service company runs biweekly payroll. Two new hires, one termination, overtime, a bonus, and an employee move appear in the change log. The preparer confirms both state setups, calculates payroll, and compares the preview with the prior run. A zero-net check is traced to a taxable fringe adjustment, while a large tax change reflects the employee’s new Form W-4. A manager approves the final register. After release, the bookkeeper separately matches direct deposits, tax debits, benefits, and the payroll journal before closing the run.

The example is intentionally a workflow illustration, not a conclusion for every taxpayer. A strong file connects each number on the return to a source report and records why an exception, exclusion, or classification was applied.

Records to keep

Keep the source form or worksheet, contracts or engagement records, payer and recipient identity support, the detailed payment or payroll ledger, bank and processor reconciliation, calculations, correspondence about corrections, filed copies, recipient-delivery evidence, and federal and state acceptance confirmations. Store the records by tax year and keep superseded versions when they explain a correction.

A reviewer should be able to begin with the final reported amount and trace it back to transactions without rebuilding the year. Add a short review memo for judgments such as worker status, corporate exemption, payment-method exclusion, state filing, or unusual timing. That memo is often more useful than another unlabeled spreadsheet.

Common mistakes

• Running payroll before time approval. Late edits can create off-cycle checks, tax changes, and inconsistent records.
• Reviewing only total cash. Test employees, gross pay, taxable wages, taxes, deductions, net pay, employer costs, and year-to-date balances.
• Overriding tax without support. Fix the employee form, wage setup, work location, or year-to-date data rather than forcing a desired net check.
• Ignoring terminated employees. Final pay, leave, deductions, benefits, access, and state timing rules need a documented checklist.
• Posting one bank debit. Separate net pay, taxes, benefits, garnishments, fees, and clearing activity.
• Assuming scheduled deposits were accepted. Monitor agency and bank status and resolve rejections promptly.
• Editing the final register. Preserve the approved version and use a controlled correction workflow.

Final review before filing

Confirm the form and revision year, taxpayer identities, dollar fields, payment categories, withholding, filing channel, recipient statement, state obligations, due dates, and approval. Compare the final output with the source reconciliation rather than reviewing the form in isolation. If software recalculates an amount after an edit, rerun the tie-out.

Keep preparation, filing, and acceptance as three separate statuses. A draft can be complete but unfiled; a transmission can be sent but rejected; a federal return can be accepted while a state return is still missing. This status discipline prevents a polished PDF from being mistaken for finished compliance work.

How to handle a discrepancy

When a source form, ledger, payroll report, or software preview disagrees with another record, stop before filing and identify which amount represents the underlying transactions. Trace the difference by vendor or employee, date, invoice or payroll run, payment channel, and account. Common causes include a payment posted to the wrong year, a void recorded after a report was generated, a card payment included with checks, a duplicate import, an incorrect taxpayer name, or a late adjustment. Record the explanation and the correcting entry or form request.

Do not erase the trail by overwriting the original report. Save the first version, the reconciliation, the corrected version, and the approval. If a third party supplied an incorrect information return, request a formal correction and retain the correspondence. If a return was already transmitted, use the current correction procedure for that form and channel. A corrected recipient copy without a corresponding agency correction can leave the records inconsistent.

Federal filing is only one layer

Federal acceptance does not settle state or local obligations. A state may use a different threshold, worker test, filing portal, account number, transmittal, or due date. Some states receive eligible information through a combined program, while others require a direct submission. Verify the jurisdictions connected with the payer, recipient, employee, work location, withholding, and business activity. Save state confirmations separately so they are not hidden behind the federal acceptance.

Make next year easier

Turn the year-end work into a monthly control. Collect identity forms during onboarding, code payment methods consistently, reconcile payroll and vendor activity each month, and flag vendors or income streams that need special treatment. Schedule a fall review of missing forms, classification questions, state registrations, and electronic-filing access. By year-end, the team should be validating a maintained file instead of reconstructing twelve months of transactions under a deadline.

Practical implementation notes

Preflight checklist

Confirm calendar, users, bank funding, agency accounts, employee changes, approved time, tax updates, outstanding notices, and prior corrections.

Variance report

Compare current and prior headcount, gross, overtime, bonus, taxable wages, each tax, deductions, net, and employer cost.

Funding worksheet

Separate direct deposits, checks, federal taxes, every state and local tax, benefits, garnishments, reimbursements, and fees.

Close memo

Record unresolved items, rejected transactions, off-cycle needs, corrections, notice follow-up, and who owns each deadline.

Deeper planning points

New hires

Verify identity, work eligibility, tax forms, rate, schedule, work location, bank data, benefits, and system access. Do not let an incomplete profile default silently into the wrong state, tax, pay rate, or withholding method.

Terminations

Coordinate final-pay timing, accrued leave, deductions, benefits, equipment, access, and state notices. An employee can leave the roster while tax, benefit, and year-end reporting obligations continue.

Bonuses and commissions

Document authorization, earning period, payment method, tax method, benefit treatment, and state sourcing. Separate the compensation decision from the withholding calculation and preserve the approval.

Employee moves

Use the effective date to update residence, work location, withholding certificates, reciprocity, unemployment, local tax, and registrations. Reconcile the first affected payroll closely and review W-2 state fields before year-end.

Off-cycle payroll

Use a defined reason and approval rather than bypassing controls. Reconcile the additional check to tax deposits, returns, benefits, bank activity, and the next regular payroll.

Quarter close

Tie all payroll runs to Forms 941, state returns, deposits, the general ledger, and liability accounts. Resolve differences before the next quarter accumulates over an unexplained balance.

Salaried employees

Test salary basis, covered period, unpaid absences, overtime status, and state requirements before calculating. A fixed salary does not eliminate the need for time or exception records, especially for nonexempt employees, leave, project costing, and certified work.

Tips

Reconcile reported tips, allocated tips where applicable, credit-card settlements, cash records, taxes, and negative-net checks. Create a procedure for uncollected employee tax and year-end reporting rather than overriding the calculation to force a positive check.

Garnishments and levies

Apply the legal order, priority, protected-pay rules, fees, remittance schedule, and stop date. Maintain restricted access and reconcile each deduction to the creditor payment and case balance.

Benefits

Use plan documents and effective dates for eligibility, employee deductions, employer contributions, taxable benefits, and termination. Test pretax treatment by tax and jurisdiction, not from the deduction label alone.

Bank changes

Require independent verification and a cooling-off or dual-approval control where practical. Payroll bank fraud often targets last-minute employee direct-deposit changes, so preserve the request, verification, approver, and effective payroll.

Continuity

Prepare for absence, system outage, bank rejection, and agency portal failure. Maintain current contacts, backup users, secure data exports, cutoff alternatives, escalation steps, and a tested method to pay employees on time.

Payroll taxes

Separate calculation, deposit, return, and agency-account status. A provider can calculate the right tax but debit the wrong account, apply the payment to the wrong period, or have a return rejected. Reconcile all four stages.

Benefit remittances

Match employee deductions and employer contributions to vendor invoices and eligibility. An amount withheld from pay remains a liability until remitted or corrected, even when the payroll register itself is accurate.

General ledger

Post payroll with enough detail to reconcile liabilities and management reporting. Use consistent accounts for wages, employer taxes, benefits, deductions, cash, clearing, departments, locations, and jobs, then clear each liability from supporting payments.

Year-to-date continuity

Compare every employee with the previous final payroll. Unexpected resets, imported balances, duplicate checks, voids, and legal-name changes can distort wage bases and year-end statements without changing the current net pay visibly.

Manual checks

Enter off-system payments into payroll before returns and W-2s are finalized. Document gross-up decisions, tax calculations, pay date, check replacement, voids, bank status, and accounting so the manual transaction is not omitted or duplicated.

Post-run review

Use a dated close checklist after funds are released. Confirm employee payment status, tax and benefit debits, accounting, rejected items, support tickets, notices, off-cycle work, and who will verify final resolution.

Payroll cutoff

Publish one cutoff for time, changes, and approvals, with a controlled emergency path. Late items should identify the requester, business reason, affected employees, approver, banking impact, tax impact, and whether an off-cycle payment is required.

Service-provider debits

Reconcile combined withdrawals to their components. Split net pay, federal taxes, every state and local tax, benefits, garnishments, fees, and funding adjustments rather than clearing the entire debit to one payroll account.

Employee questions

Route paycheck questions through a secure, documented process. Compare the pay statement with time, earnings, tax forms, deductions, benefit elections, and year-to-date data; record the resolution and any correction without exposing another employee’s information.

For the next layer of context, see this related guide, the companion reporting article, and the connected workflow.

If the form, books, and filing status do not agree, Steady can help reconcile the source data and prepare a clean filing package through its specialist service.