How to Run Payroll for the First Time: 7 Important Steps to Take

If you’re starting your business journey, then managing payroll can feel a bit, scratch that, really challenging! But you can’t avoid it. Payroll is a critical procedure that helps you ensure your employees are getting paid on time. Plus, it will help you comply with various tax and labor laws.

This guide will walk you through the step-by-step process of setting up payroll for the first time. From obtaining your EIN to figuring out gross and net pay, we’ve got you covered!

7 Steps to Take to Run Payroll for the First Time

Running payroll for the first time might seem daunting. In this section, we’ll explore seven logical steps to guide you through how to run payroll efficiently and effortlessly. Let’s dive in!

Step 1: Getting an Employer Identification Number (EIN)

If you’re planning to run your payroll for the first time, one of the first steps you need to take is getting an Employer Identification Number (EIN). This number is issued by the IRS and serves as your business’s social security number. It’s crucial for hiring and reporting taxes to the IRS.


Obtaining an EIN is a straightforward process that can be done online directly through the IRS website. Remember, every business needs its unique EIN before it can hire employees. You’ll also need an EIN to set up a separate business checking account for your company.

Step 2: Collect Key Documents From Employees

Before you start running payroll, it’s crucial to gather several essential documents from your employees. You’ll need W-4 forms, which provide necessary information about tax withholdings.

It’s mandatory to have I-9 forms as they confirm the eligibility of an individual to work in the U.S.


In addition to these important tax and legality documents, be sure you have key personal details for each workforce member. This includes gathering correct addresses, social security numbers, and birth dates. Accurate record-keeping will help facilitate proper payroll calculations.

Step 3: Understand State-Specific Payroll Taxes

Navigating the complexities that come with payroll taxes can be challenging. State-specific payroll tax systems are one prime example of this complexity. To ensure compliance and avoid potential penalties, it is crucial to understand the specific rules that apply in your state.


For instance, if you’re running a business based in the Big Apple, understanding employer payroll taxes in New York will be essential for smooth operations. Understanding the nuances can help you set up an appropriate strategy for managing these taxes systematically.

Step 4: Calculating Gross Pay and Net Pay

Now that you have your employees’ details and your EIN, it’s time to start crunching some numbers. Gross pay is the starting point for calculating each employee’s earnings. This involves adding up all their regular work hours plus any overtime or other forms of compensation.


After determining the gross pay, you’ll need to calculate net pay. This is essentially what an employee takes home after all deductions are subtracted from their gross pay. These mandatory deductions may include federal/state taxes, social security, and Medicare costs, among others.

Step 5: Subtracting all Deductions From Employees’ Earnings

Throughout the payroll process, understanding the deductions and keeping an accurate record of transactions is crucial for any business. A vital part of this is accurately managing financial documents like bank statements. An accurate Bank Statement Converter can seamlessly transform PDF bank statements into formats that are more conducive for payroll analysis like Excel, CSV, or QBO, ensuring you have all the details neat and error-free.

Let’s expand on what deductions you need to take and why this process is necessary. The necessity of deducting taxes like Social Security, Medicare, and federal and state income tax from an employee’s paycheck is embedded in specific legal requirements.

These deductions are mandated by law and contribute to funding essential programs. The deducted state and federal taxes fund numerous public services. In sum, these obligations ensure a functioning safety net for all citizens and must be accurate to ensure legality.

Step 6: Choose How Employees Receive Their Money

Now, you need to decide how your employees will receive their earnings. Several options exist with the most common one being direct deposit, where an employees’ earnings are electronically transferred straight into their bank accounts. This method is often preferred.


However, some businesses might opt for traditional paper checks, especially if the company or its workers prefer tangible forms of payment. Whichever method you choose, it’s crucial it fits in with your business operations and meets your employee needs for a seamless payroll process.

Step 7: Select and Maintain a Payroll Schedule

The final step in setting up your payroll process involves deciding on a payment schedule. This refers to how often you’ll pay your employees, with the options being weekly, bi-weekly, or monthly. The frequency can have an impact on both your cash flow and employee morale.


Once you’ve selected the right payroll schedule for your business, it’s essential to stick to it consistently. Being regular and predictable with payments promotes trust among your employees and aids in maintaining smooth financial operations within your company.

In Conclusion…

Now, you’re equipped with the basic knowledge to run your first payroll. It may seem like a tall order, but remember that every successful business owner was once in your shoes. The key is to stay organized, keep meticulous records, and never hesitate to seek help when needed.

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  • About the Curator

    Abelino Silva. Seeker of the truth. Purveyor of facts. Mongrel to the deceitful. All that, and mostly a blogger who enjoys acknowledging others that publish great content. Say hello 🙂

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