Beginner's Guide to Payroll: How to Get Started

Payroll is one of the most time-consuming tasks in human resources. The method chosen is crucial – it can take minutes, hours, or even days.

Even though payroll is a routine task, it significantly contributes to employee satisfaction. Proper processing strengthens trust across the company and allows HR managers to focus on employee retention, development, and long-term growth.

The good news: you are not on your own. If you are not yet familiar with compensation, wages, and taxes, we are happy to help you understand how payroll works and guide you through the process for the first time. The most important thing is that your employees are paid on time, in full, and regularly.

In this guide, you will learn everything important about payroll. You will find out what you need to get started, how long payroll actually takes, which mistakes you should most commonly avoid, and how to protect employee data.

Whether you are a business owner handling all tasks yourself or a HR manager wanting to learn the basics of payroll – this resource will help you carry out payroll accurately and safely.

Basics of Payroll: How to Get Started

Setting up and processing payroll follows a similar basic procedure in most U.S. companies. It begins with applying for an Employer Identification Number (EIN) and ends with receiving the paychecks (in their accounts – the moment everyone is waiting for).

What You Need for Payroll

• An Employer Identification Number (EIN). The number the federal government uses to identify an organization for tax purposes.  
• State and local identification numbers. Similar to an employer identification number, but at the state and local level.  
• Employee tax information. W-4 forms for full-time and part-time employees, W-9 forms for contractors.  
• A payroll budget and plan. You need to determine how much to pay your employees and how often.  
• A tax payment schedule. This specifies when you will pay the taxes for the organization.

What You Need for Payroll

Once your records and schedules are set up, payroll can begin. Here are the key steps.

• You need to calculate the gross salary. For hourly employees, this means adding up regular working hours and overtime and multiplying them by the respective hourly rate or overtime rate. If you use traditional timesheets that need to be submitted, checked for errors, and approved, this process is very time-consuming – however, it can be sped up with time-tracking software.  
• Next, calculate the net salary. After calculating federal, state, and local taxes based on the employees' individual tax withholding information, add insurance contributions, pension contributions, and other deductions, and subtract this amount from the gross salary.
• Reserves/Distribution of Deductions. Taxes and other deductions must either be held in trust and later paid to the appropriate authorities or paid out immediately according to your payment schedule.  
• Initiate Payment. Print checks or arrange direct deposits to your employees.

How to Ensure Compliance  

Compliance may sound daunting at first, but with these steps, you’ll be on the safe side.  

• Keep records. Detailed, complete, and organized records prevent payroll problems and speed up audits. More on this can be found in the relevant section below.
• Pay your taxes on time. Penalties for late federal tax payments range from 2 to 10 percent, and penalties for state and local taxes can be even higher. Therefore, timely tax payments are essential.
• Report changes to the tax office. Regular reporting of new hires, employee turnover, and other changes affecting your payroll documents your due diligence and reduces the risk of an audit.

How long does payroll take?  

When you're in the middle of it, payroll can feel like a lengthy process. The method you choose determines the duration: whether you process payroll manually using spreadsheets, outsource it to a service provider, or use specialized software that allows you to complete payroll quickly in-house.  

Based on experience, HR managers spend four to twelve hours per payroll period on payroll. However, the actual processing time depends on the number of employees and their type of compensation (hourly wage or fixed salary).

The U.S. Chamber of Commerce and the U.S. Internal Revenue Service (IRS) report that 41% of surveyed companies spend 3–10 hours per month solely on payroll taxes. However, the positive news is that 46% of companies in the same survey stated that using a payroll software platform only requires 1–2 hours per month for payroll taxes.

Payroll

Basics: From accounting to avoiding costly mistakes – there is a lot to consider. We understand that. You don’t need extra information when you’re right in the middle of payroll. That’s why we’ve put together a helpful list of guidelines to help you stay organized and optimize your processes.

What belongs on a payroll checklist? Payroll involves numerous steps for each payroll period, and it's easy to overlook small but important details. A checklist helps you stay organized, reduce errors, and ensure that nothing is missed. From employee tax forms to payment schedules – using a checklist saves time and prevents mistakes.

Here are some of the most important points:

• Collect your employees' tax forms (W-4 for employees, W-9 for contractors) and ensure that your tax ID and state/local identification numbers are available.  
• Create a payroll schedule and stick to it so your employees know when to expect their pay.  
• Check work hours, overtime, and pay rates to catch discrepancies early.  
• Confirm deductions for taxes, benefits, and wage garnishments before calculating net pay.  
• Conduct a final error check before running payroll.  

This checklist serves as a step-by-step guide for smooth payroll processing with fewer surprises.

What are the most common payroll mistakes?

No one wants to use the words 'mistake' and 'payroll' in the same sentence, yet even experienced professionals make errors. The most common ones include:

• Miscalculations of wages due to missing working hours, overtime, or incorrect hourly rates.
• Missed deadlines for payroll or tax filings, which can lead to fines and undermine employee trust.
• Withholding incorrect amounts for taxes or social contributions, requiring time-consuming corrections.
• Incomplete or inconsistent payroll records.
• Manual data entry and resulting typos, which can cause major issues.

The good news? Every one of these mistakes is avoidable. With a solid payroll guide, reliable time tracking, and payroll software that automates calculations and reminders, you can ensure accurate and compliant payroll processing.

What should you consider regarding the security of your payroll?

Payroll systems contain some of your company's most sensitive employee information: from home addresses and bank details to benefits information and tax history. Protecting your employee data and securing your payroll is therefore essential. Strict security measures help prevent fraud, protect personal data, and give your employees the assurance that their information is safe.

Effective payroll security begins with:

• Restricting access to only essential personnel and enforcing strong authentication (e.g., multi-factor authentication) for all authorized users.
• Encrypting sensitive data, both at rest and in transit, prevents misuse if intercepted.
• Regular audits and monitoring help detect unusual activity early, while training your team reduces the risk of accidental disclosure.
• By combining these measures with secure payroll software, you can prevent fraud and protect personal data.

How to Store and Manage Payrolls

High data security in payroll accounting is only half the battle. You also need to know how to properly store these important payroll records. Accurate payroll records are important for complying with legal requirements and giving you peace of mind. In the event of an audit, correct records can save you a lot of time and trouble.

Payroll records should include at least employee information, completed tax forms (such as W-4 and 1099), pay stubs, benefits documents, and tax payment confirmations. The U.S. Internal Revenue Service (IRS) requires employers to keep payroll records for a minimum of four years. Some states or industries may require longer retention periods.

The best approach is to securely store payroll records in a digital system, restrict access to authorized employees, and create regular backups. By treating payroll records as a valuable asset, you save time, minimize risks, and always have the assurance that everything is under control. You can find a complete checklist in our comprehensive payroll guide.

Should you switch to paperless payroll?

The short answer is: Yes! Especially for small businesses with a high workload, the benefits go far beyond just saving paper. By eliminating physical checks and forms, you save money, make your processes more efficient, reduce your carbon footprint, and can monitor your payroll anytime, anywhere.

Paperless payroll also makes everyday life easier for employees, as they can securely access their payslips and tax forms online at any time. Digital systems also reduce manual effort, improve accuracy, and protect sensitive data better than paper records.

For companies looking to switch to paperless payroll, this offers a clear path to greater efficiency, security, and long-term cost savings.

Do you need a specialized payroll service provider?

Payroll accounting in-house is manageable at first, but as the team grows, the process becomes more complex. Since running a small business is already demanding, especially without its own HR department, a specialized payroll service provider can take over a large portion of administrative tasks, ensure compliance with legal requirements, and even automate recurring tasks. For many small businesses, this means less stress and more time for strategic work.

Choosing the right provider depends on the needs of your business. You need to carefully consider costs, integration options, and the desired level of support. Evaluating these options helps you make an informed decision and find a partner who can grow with your business.

What are payroll taxes?  

Payroll taxes are among the most important and complex components of the payroll process. Employers are required to withhold the correct amounts for income tax, health insurance, social security, and, if applicable, state and local taxes. Adhering to payroll tax deadlines ensures that employees are paid correctly and that your company avoids penalties for underpayment or late submission.  

Deadlines vary depending on the type of tax and jurisdiction. Therefore, many companies use payroll software that automatically calculates the withholdings and sends payment reminders. Timely payment of payroll taxes not only helps companies comply with legal requirements but also strengthens employees' trust in responsible payroll management.

Payroll is a complex yet fundamental responsibility that directly impacts compliance, finances, and employee morale. The shift from time-consuming, error-prone manual processes to an automated solution is a non-negotiable step for efficiency and accuracy. IceHrm provides a robust, integrated HRIS that includes key payroll preparatory features. By centralizing employee data, managing time-tracking (essential for gross salary calculation), and facilitating leave management, IceHrm drastically reduces the manual effort and errors associated with the first critical payroll steps. While external providers handle the final tax filings, IceHrm's Time and Attendance and Record-Keeping features provide the secure, auditable, and compliant foundation necessary for efficient, paperless payroll processing, allowing HR managers to focus on strategic tasks rather than administrative burden.