Quick answer: A reliable payroll process has seven steps: set up each employee correctly (pay type, rate, frequency, payment details); collect hours from a verified source; approve hours (ideally daily); calculate gross pay including overtime; apply bonuses, deductions and taxes; generate payslips and payment files; then pay on time and keep records. Errors usually come from unverified hours and manual calculations, so fix those first.
This guide covers the operational process. For tax filing and withholding, work with your accountant or a payroll tax provider.
Step 1: Set up employees correctly
For each employee, record:
- legal name, ID and contact details;
- pay type (hourly, daily or fixed salary) and rate;
- pay frequency (weekly, bi-weekly, semi-monthly or monthly);
- payment details (bank account);
- tax forms required in your jurisdiction;
- start date and allowed locations.
Step 2: Collect hours from a verified source
Hours are the foundation of payroll. Use a source you can trust:
- camera-verified attendance, a reliable time system, or approved timesheets;
- include breaks and any overtime.
Step 3: Approve hours
- Daily approval is easier and more accurate than approving a whole period at once.
- Add notes for rejected or adjusted days, so employees can see why.
Step 4: Calculate gross pay
- Hourly: hours × rate, plus overtime at the required rate.
- Daily: days worked × daily rate.
- Fixed: salary for the period (prorated for partial periods if needed).
US note: the federal FLSA requires overtime for non-exempt employees at 1.5× the regular rate for hours over 40 in a workweek. Some states have stricter daily overtime rules. Check your state.
Step 5: Apply adjustments
- Bonuses and incentives.
- Deductions allowed by law and agreed in writing.
- Taxes and withholdings, through your payroll tax provider or accountant.
Step 6: Generate payslips and payment files
- Payslips showing hours or days, rates, gross pay, adjustments and net pay.
- Bank or payment files for transfer.
- Clear PDFs that employees can access.
Step 7: Pay and keep records
- Pay on the scheduled date, every time.
- Keep payroll records as required. US federal law requires payroll records to be kept for at least three years, and states may require longer.
- Reconcile payroll with your accounts.
Payroll calendar example (bi-weekly)
| Day | Task |
|---|---|
| Days 1–14 | Hours verified and approved daily |
| Day 15 | Final review of the period |
| Day 16 | Add bonuses and deductions |
| Day 17 | Generate payslips |
| Day 18 | Send payments |
Common payroll mistakes
- Paying unverified hours.
- Missing overtime.
- Old pay rates after a raise.
- Late payslips.
- No record of adjustments.
Frequently asked questions
How often should small businesses run payroll?
Weekly, bi-weekly or monthly are common. State laws may set minimum pay frequencies for certain workers.
What's the most common payroll error?
Paying hours that weren't verified or approved, followed by overtime mistakes.
Can payroll be automated?
Yes. Workforce software can turn approved hours into payslips and payment files automatically, while your tax provider handles filings.
Key takeaways
- Set up employees correctly and use verified hours.
- Approve daily, calculate carefully and document adjustments.
- Pay on time and keep records.
Next step: Digital EYE turns verified hours into payslips and bank files in a few clicks. See payroll.