1. Start with the employer and worker setup

Before the first pay period, make sure the business is set up to employ workers and that each person is classified correctly. Employee-versus-contractor status changes the tax and reporting rules, so it should not be decided based only on what the parties call the relationship. The IRS looks at facts showing behavioral control, financial control, and the type of relationship.

For employees, collect the information needed for employment and withholding records. That commonly includes a completed Form W-4 for federal income-tax withholding and Form I-9 for employment-eligibility verification. State withholding and new-hire reporting requirements may add other steps.

2. Define the pay period before you calculate anything

Choose the pay period, pay date, and pay frequency that apply to the employee. Keep the workweek concept separate from the pay period: overtime under the FLSA is generally measured by workweek for covered nonexempt employees, while a pay period may contain one or more workweeks.

For a business with only a few employees, consistency matters more than complexity. Use the same naming convention, period dates, and review sequence every time so a later payroll register, employee statement, and bookkeeping entry can be tied back to the same run.

3. Gather earnings inputs and supporting records

For hourly employees, collect complete time records before calculating payroll. For salaried employees, confirm the salary basis and any changes that affect the period. Add commissions, nondiscretionary bonuses, differentials, reimbursements, or other compensation only after determining how each item should be treated.

Do not treat “hours × rate” as the whole payroll calculation. Overtime, bonuses, taxable fringe benefits, pre-tax deductions, and state or local rules can change the result.

4. Calculate gross pay, withholding, deductions, and net pay

Gross pay is the employee’s earnings before taxes and deductions. From there, payroll may include federal income-tax withholding based on Form W-4 and current IRS withholding methods, Social Security and Medicare taxes, state or local taxes where applicable, and authorized deductions. Employer-side liabilities can also exist even though they do not reduce the employee’s net pay.

For 2026 federal withholding, the IRS directs employers to Publication 15-T and the current Form W-4 framework. Because tax tables and thresholds can change, avoid carrying an old-year calculation method forward without checking the current-year source.

5. Review before you finalize the pay period

A small payroll is still worth reviewing systematically. Check that each employee belongs to the correct pay period; hours, rates, and additional earnings are complete; taxable wages are reasonable; withholding and deductions are supported; net pay reconciles; and year-to-date figures continue from the prior completed run where appropriate.

The review should also look for outliers. An employee whose net pay changes sharply, a deduction that appears twice, or a year-to-date balance that moves backward deserves attention before the run becomes part of the employer’s records.

6. Separate payroll preparation from money movement and tax filing

A payroll calculation does not by itself pay employees, deposit employment taxes, or file returns. Employers generally report federal withholding and Social Security and Medicare taxes on Form 941 unless another filing rule applies, and federal tax-deposit schedules are separate from the employer’s employee pay frequency.

If you use a bookkeeper, payroll service provider, or another third party, define exactly who is responsible for calculation, approval, wage payment, tax deposits, filings, and record retention. The IRS emphasizes that employers generally remain responsible for federal employment-tax obligations even when some payroll duties are outsourced.

7. Close the run with a complete record package

At minimum, preserve enough information to explain what happened: who was paid, the pay period and pay date, hours or salary basis, gross pay, taxes, deductions, net pay, and the supporting records behind those figures. A payroll register gives the employer a run-level view, while employee statements document the individual result.

LeoFolio’s U.S. Pay Run is designed for the calculation, review, and record-preparation portion of this workflow for one employer and up to five employees. It creates a payroll register, funds summary, Bookkeeper Handoff, CSV records, and employee statement PDFs. It does not move money, remit taxes, or file returns.

A simple small-business payroll rhythm

  • Before the period closes: collect time, earnings changes, and deduction updates.
  • Calculate: work employee by employee from the same defined pay period.
  • Review: reconcile gross-to-net, totals, and year-to-date continuity.
  • Approve: resolve unusual values before relying on the final numbers.
  • Complete payment and tax responsibilities using the employer’s actual banking, payroll, and filing process.
  • Archive: keep the completed register, employee records, and supporting inputs together.

Quick FAQ

Can a business with only one employee still need a formal payroll process?

Yes. The number of employees changes the scale, not the basic employer obligations. A repeatable process is especially useful because one missing step can affect the entire payroll.

Does LeoFolio pay employees or file payroll taxes?

No. LeoFolio prepares calculations and payroll records. It does not move funds, run direct deposit, remit taxes, or file employment-tax returns.

Should contractors be included in the same payroll run as employees?

Not automatically. Worker classification matters. Independent contractors are generally handled under different payment and information-reporting rules, so keep contractor workflows distinct from employee payroll unless a specific system is designed to separate them correctly.

LeoFolio pathway

For small-employer payroll record preparation, LeoFolio U.S. Pay Run supports one employer and up to five employees per completed run, with reviewable calculations and a coordinated record package.

Source notes for editorial verification

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U.S. Payroll · Methodology · Payroll calculators · Wage-statement requirements
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