Payroll might not be the most glamorous part of running a business — but it is absolutely one of the most important. Getting it right keeps your team happy, your business compliant, and your operations running smoothly, while getting it wrong can lead to fines, frustrated employees, and a whole lot of unnecessary stress.
But if you’re a fledgling business or you’ve just hired your first employee, where exactly do you start? What do you need to have in place? And what are your responsibilities beyond transferring money?
In this article, we’ll lay out the groundwork and show you how to do payroll step by step, from start to finish. So let’s dive right in.
First, what exactly does payroll entail?
At its core, payroll is the process of paying your employees accurately, on time, and in compliance with local laws. That doesn’t just mean sending a payment, though; it means calculating wages, deducting taxes, maintaining records, and complying with local labor and tax laws.
Payroll is also about trust. When employees know they’ll be paid correctly and on time, it builds confidence and loyalty. And when your business is compliant with tax and labor regulations, it minimizes risk and protects your bottom line.
“If you’re treating payroll as a back office function, you’re already behind the times” — Read Jonathan Goldsmith’s take on the current state of payroll
Who needs to do payroll?
If you have employees — whether they’re full-time, part-time, temporary, or remote — you need to run payroll. This applies whether you’re a:
- Small business with just one or two employees
- Startup hiring your first team members
- Mid-size company expanding into new regions
- Business hiring globally
So, how do you run payroll?
To get started with payroll for your business, here’s what you need to do:
1. Lay the groundwork
Before you can run payroll, you need to have the foundations in place. This means:
- Registering your business with the relevant tax authorities (if you haven’t already done so)
- Applying for an employer tax ID
- Setting up a business bank account to pay salaries and withhold taxes
You will also need to choose a pay schedule (e.g., weekly, biweekly, or monthly), but be careful; in some locations, pay frequency is guided by law.
You also need to correctly classify your hires before you set up payroll for them. For instance, if you only have one or two team members but you hired them as independent contractors, the process — and your obligations — will be different, depending on where the contractors are based. Learn more about misclassification.
2. Collect employee information
Next, gather the necessary information from each employee on your payroll. This includes their:
- Personal details
- Relevant government data (such as social insurance and tax numbers)
- Bank account details
- Employment agreement and salary details
- Benefits enrollment forms (if applicable)
Keep this information secure and up to date, as it’s essential for accurate payroll processing.
Pro tip: Use a payroll software that enables your people to self-serve.
3. Calculate their gross pay
Gross pay is the total amount your employee earns before any deductions. It can include:
- Base salary (or hourly wages if they’re paid hourly)
- Overtime pay
- Bonuses and commissions
- Paid time off (PTO)
- Other allowances or reimbursements
For hourly workers, multiply the hours worked by their hourly rate. For salaried employees, divide the annual salary by the number of pay periods.
4. Withhold deductions and taxes
This is where payroll can start to get complex. You’ll need to calculate and deduct:
- Income taxes (at all levels)
- Social contributions (such as social insurance, unemployment insurance, and national health payments)
- Pension contributions
- Other withholdings, like private health insurance or wage garnishments
The exact amount of the deductions depends on multiple factors, including your location, your employee’s location, their personal circumstances, their earnings, and their benefits.
Important: Note that these are employee contributions. In many cases, you will also have to make additional employer contributions, which means that the actual employee cost is higher than the gross salary you are paying them. To see a full breakdown of employer costs when hiring in a certain location, check out our free Employee Cost Calculator tool.
5. Pay your employees
Once you’ve calculated the net pay (i.e., the gross pay minus deductions), it’s time to actually pay your employees. You can do this via multiple methods, such as:
- Direct deposit
- Paper check
- Payroll cards
- International wire transfer (for global employees)
Be consistent with your payment schedule and always notify employees of their pay (through pay stubs or digital slips).
See also: How to set up direct deposit for your employees in the US
6. Submit payroll taxes and reports
As the employer, you're almost always responsible for:
- Withholding and submitting your employees’ taxes to the appropriate government agencies
- Filing regular payroll reports as required
- Issuing end-of-year forms (such as W-2s in the US or P60s in the UK)
- Staying compliant with changing tax laws and employment regulations
Note that missing a deadline or underpaying taxes can result in fines or audits in most countries.
7. Keep payroll records
Most countries require businesses to retain payroll records for several years. These records can include:
- Pay stubs
- Tax filings
- Timesheets
- Employment contracts
- Benefit and deduction records
Good recordkeeping isn’t just about compliance — it also protects you in the event of disputes, audits, or internal questions.
Should you run payroll in-house or outsource?
This is the key question for a lot of businesses, especially given the wealth of services and options available.
Following the above steps may be viable in-house if you only have one or two employees. But as your business grows, payroll can become too time-consuming to handle manually. At that point, you have a few options:
Hire a payroll specialist and run payroll in-house
This approach ensures you retain full control. However, it can be costly, time-consuming, and comes with a high risk of human error.
It may also not be scalable if you’re planning to hire in other locations further down the road.
Outsource to a local payroll provider
This approach is hands-off, freeing up time and resources for your team and may be suitable if all your employees are in one location.
However, costs can be higher and, again, it’s not scalable if you want to hire in other locations.
Use payroll software
This can be an ideal choice for many businesses — provided you partner with the right platform. A robust, progressive payroll solution — like the one offered by Remote — automates your calculations and filings, saving you time and resources and:
- Ensuring compliance, even as laws change
- Reducing the risk of manual errors
- Removing all the administrative hassles of payroll management and setup
Remote Payroll is also scalable, allowing you to run global payroll in multiple countries all on one platform.
Use a PEO
A professional employer organization (PEO) is an outsourced HR solution, whereby the PEO acts as a co-employer. It is responsible for running all HR aspects of your business, including payroll. This can be a convenient solution if your business severely lacks HR resources across the board.
See also: Does your company need a PEO or a payroll provider?
Use an EOR
If you’re hiring abroad (or planning to), you will either need to have a legal entity set up in the employee’s country — or use an employer of record (EOR). What is an EOR, and how does it work?
Your EOR provider acts as the legal employer of your hire, and — like a PEO — is responsible for all HR elements, including payroll.
EORs are an excellent solution for companies that are looking to scale quickly, access top talent abroad, test out new markets, or provide a temporary hiring solution.
See also: Does your company need an EOR or a payroll provider?
How Remote can help
Learning how to do payroll may seem overwhelming at first, but with the right setup, tools, and processes, it quickly becomes a routine part of running your business — and even a strategic advantage.
Whether you need a payroll partner, a PEO, or an EOR, Remote can remove all your payroll headaches and worries, and make the entire process quick and painless every month. To learn more — and to identify the best solution for your business — speak to one of our friendly experts today.