How to do Payroll

So you are wondering how to do payroll.

Processing payroll is not as easy as one may think. The process of doing payroll typically involves more than handing out paychecks. You must be able to calculate your employees’ salaries, calculate and file taxes, and submit reports for tax purposes.

Paying your employees may not seem so hard, but calculating taxes and deductions can certainly prove challenging!  There are several strategies regarding how to do payroll, each with its own set of advantages and disadvantages.

How to Do Payroll Manually


If you have a handful of employees that earn the same pay rate, you may decide to manually process your payroll. However, for most employers, the process of learning how to do payroll is not so easy or straight forward.  It may become quite difficult to manually complete your payroll if your company faces the following circumstances:

  • You have a number of employers at different pay scales and pay rates.
  • You have a widely dispersed work force.
  • You pay your employees overtime.
  • Your employees have shift differentials.
  • Your employees have a union contract.

Manually processing payroll also sets you up for mistakes, some of which may be quite costly. In fact, certain studies have shown that up to 40 percent of employers who complete their payroll manually pay penalties and late payments to the IRS because of bookkeeping mistakes.

If you plan on learning how to do payroll manually, take the time to keep meticulous records, and check and double check your calculations as to avoid costly mistakes.

How to Do Payroll Computerized

For most small businesses, it pays to have computer software that is capable of processing their payroll and accounting for taxes and deductions. Most computer software payroll programs are also capable of generating W-2 forms for end-of-the-year tax purposes.Computer accounting software often includes payroll software, thus making the process of how to do payroll generally painless weekly or monthly task.

A popular form of accounting software that includes payroll software is QuickBooks. Before you purchase payroll software, check your current accounting software package for payroll options.

Computer software reduces the chances of mistakes, although you will still need to manually enter the employees’ hours and information. In addition, you must update the software regularly to account for new tax laws. Luckily, most software programs provide timely downloads for these purposes.

When shopping for payroll software, consider the needs of your business, as there are plenty of options available.

Outsourcing Payroll

External payroll processing companies are ideal for larger companies, as it creates a more streamlined process and eliminates the need to pay an employee to handle the payroll. When considering an external payroll service, calculate how much time it takes for an employee to handle this task and compare it with the costs associated with external payroll services.

In addition, most external payroll companies offer direct deposit, a service may employees are sure to appreciate.

Most payroll services are able to customize the payroll services according to your needs and wants. Also, many external payroll services are online, enabling you to easily send the appropriate payroll information over a secure sever.

When shopping for an external payroll service, check out other types of companies that also may offer payroll services, such as accountants, banks and other financial institutions.

Learning how to do payroll can be a difficult task, and depending upon your company’s circumstance and resources, outsourcing may be the most budget-effective solution.