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The fastest way to find out how many steps are really in your payroll process is to ask the person who runs it to take a vacation.
That’s only half a joke. I’ve watched it happen. Payroll feels like one button until the person who knows the sequence is out, and then you find out there were eleven other things they did before that button: verify the timesheets, key the new garnishment, check the bonus run, reconcile the register. None of it written down anywhere. The consequences of getting it wrong are not abstract: a 2024 global payroll report found that 24% of employees say they would leave after just one payroll error - and on the compliance side, the IRS assessed more than 4.4 million employment tax penalties in fiscal year 2024 totaling nearly $26.9 billion.
I’m Yuval, founder and CEO of Glitter AI. I’m not a payroll administrator, to be clear. But I’ve spent years helping finance and HR teams pull processes out of one person’s head, and payroll is the one that scares people most. The mistakes are public, and the deadlines never move.
So here’s the whole thing as a numbered checklist. Twelve steps, in order, the way a clean pay run actually goes. If you want the deeper narrative version with the “why” behind each phase, I wrote that as the full payroll process guide. This post is the companion you can actually run down a list every cycle.
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The 12 payroll processing steps at a glance
- Collect and verify timekeeping data
- Confirm employee and pay-data changes
- Calculate gross pay
- Apply pre-tax deductions and benefits
- Calculate tax withholdings
- Apply post-tax deductions and garnishments
- Calculate net pay
- Review and approve the payroll register
- Fund and submit the run
- Distribute pay and pay stubs
- Remit and file payroll taxes
- Record payroll in the GL and reconcile
That order matters. Most painful payroll mistakes aren’t a wrong number. They’re a step done out of sequence, like approving the register before the new hire’s deductions were entered. Here’s each one.
Step 1: Collect and verify timekeeping data
Pull hours from your time system for the full pay period. Hourly hours, overtime, PTO, holiday, sick. All of it.
Then verify it before you trust it. Open timesheets nobody submitted? Missing punches? An overtime spike that’s real versus a forgotten clock-out? People rush this step, and it’s the one that causes the most reruns. Get manager approvals on the exceptions here, not after gross pay is already calculated.
For salaried staff, you’re mostly confirming exceptions: unpaid leave, mid-period start or end dates, anything that changes the standard amount.
Step 2: Confirm employee and pay-data changes
Before any math, lock down what changed since last run:
- New hires and their start dates, pay rates, and tax setup
- Terminations and final-pay rules (some states require same-day)
- Raises, promotions, and rate changes with correct effective dates
- New or changed deductions: benefits elections, 401(k) deferrals, garnishments
- Bank account or address changes
This is where most “the system was fine, the data wasn’t” errors come from. A raise keyed with the wrong effective date stays invisible until someone notices their check is short.
Step 3: Calculate gross pay
Now you can compute gross. For hourly employees: regular hours × rate, plus overtime at the correct multiplier. For salaried: the period’s standard amount, adjusted for any partial-period exceptions from Step 2.
Add everything else that counts as gross: bonuses, commissions, shift differentials, reimbursements that run through payroll. Running off-cycle bonus payments? Decide now whether they belong in this run or a separate one, because it changes the tax math.
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Step 4: Apply pre-tax deductions and benefits
Subtract pre-tax items from gross before you calculate taxes. That’s the whole point of “pre-tax.” This typically includes:
- 401(k) / 403(b) traditional contributions
- Health, dental, and vision premiums (if pre-tax)
- HSA and FSA contributions
- Other Section 125 cafeteria plan items
What you’re left with is taxable wages, usually lower than gross. Get this order wrong and you inflate withholding and quietly underpay people.
Step 5: Calculate tax withholdings
On taxable wages, calculate:
- Federal income tax (based on each employee’s W-4)
- Social Security and Medicare (FICA), including the employer match
- State and local income tax
- State-specific items like SUI/SDI where applicable
Modern payroll systems - ADP, Gusto, Paychex, Rippling - handle this automatically once the setup is right. Your job here is to sanity-check, not to compute by hand. According to the IRS, there were over 1.17 million failure-to-deposit penalties in fiscal year 2024 - most traceable to setup or input errors rather than software failures. Does anyone show $0 federal withholding when they shouldn’t? Did a remote hire trigger a new state? If your team is new to the platform, structured ADP training is worth the hour it takes.
Step 6: Apply post-tax deductions and garnishments
After taxes, subtract post-tax items: Roth 401(k), post-tax benefit elections, union dues, and court-ordered garnishments like child support or wage levies.
Garnishments come with legal rules about priority and maximum withholding percentages. Not a place to improvise. If you have garnishments, the exact handling belongs in your written procedure so it’s never left to memory.
Step 7: Calculate net pay
Net pay is what actually hits the bank: gross, minus pre-tax deductions, minus taxes, minus post-tax deductions. Take-home pay, and the number employees will check to the penny.
By now the system has done the arithmetic for you. The real skill is reading that output critically, which is the next step.
Step 8: Review and approve the payroll register
Before you submit anything, pull the payroll register, the full preview of every employee’s gross, deductions, taxes, and net for this run.
Review it like you’re trying to catch a mistake, because you are:
- Compare total payroll to last run. A big swing needs an explanation.
- Spot-check new hires, terminations, and anyone with a Step 2 change.
- Look for outliers: unusually high net pay, negative numbers, $0 checks.
- Confirm the bonus or off-cycle items landed where you expected.
Then get sign-off from whoever owns approval. This approval workflow is your last safe stopping point. Once you submit, fixing an error means an off-cycle correction. A documented two-person review here heads off most of the public mistakes.
Step 9: Fund and submit the run
Confirm the bank account holds enough to cover net pay plus employer taxes plus fees. Then submit by the provider’s deadline. Most ACH runs need submission two to four business days before payday, and missing that cutoff is its own kind of emergency.
Once it’s submitted, save the confirmation. You want proof of what was sent and when.
Step 10: Distribute pay and pay stubs
On payday, direct deposits land and pay stubs become available. Handle any paper checks or pay cards. And make sure employees can actually see their stubs, because access problems generate the support tickets that eat your week.
Step 11: Remit and file payroll taxes
Payroll isn’t done when employees are paid. You still owe the government:
- Deposit federal withholding and FICA on your IRS schedule (monthly or semi-weekly)
- Remit state and local taxes on their schedules
- File quarterly returns (941, state equivalents)
- Handle year-end: W-2s, 1099s, annual reconciliations
Most providers automate the deposits and filings, but the responsibility stays with you, and so do the penalties for a missed deposit. Your schedule belongs in the written process, not in one person’s calendar.
Step 12: Record payroll in the GL and reconcile
Finally, payroll has to land in the books. Post the journal entry: wage expense, employer tax expense, and the liability accounts for withholdings you haven’t yet remitted.
Then reconcile: payroll register to GL to bank. The numbers should tie out. Same discipline as your bank reconciliation process. Catch the small break now, before it compounds into a quarter-end mess.
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Turn these steps into a process that survives turnover
Here’s the part most teams skip. You can have all twelve steps right and still sit one resignation away from chaos, because the steps live in someone’s head and the specifics never got captured: which report, which button, which deadline, in your exact system.
That’s the gap I built Glitter AI to close. You run the payroll process once with Glitter recording your screen, and it turns that single run into a clean, step-by-step guide: screenshots, written instructions, the actual sequence in your actual system. Next cycle, anyone on the team can follow it. When your payroll person takes that long weekend, the run still goes out.
This is just good process documentation applied to the one process you can least afford to wing. If you’re building out finance procedures more broadly, payroll should sit alongside your other accounting SOPs for the finance department. Same principle, same payoff: do it once, never re-train from scratch.
The payroll cycle repeats forever. The knowledge of how to run it shouldn’t have to be rebuilt every time someone leaves.
Frequently Asked Questions
What are the steps in payroll processing?
Payroll processing has 12 core steps: collect and verify timekeeping data, confirm employee and pay-data changes, calculate gross pay, apply pre-tax deductions, calculate tax withholdings, apply post-tax deductions and garnishments, calculate net pay, review and approve the payroll register, fund and submit the run, distribute pay and stubs, remit and file payroll taxes, and record payroll in the general ledger and reconcile.
What is the correct order of payroll processing steps?
Order matters because most payroll errors come from steps done out of sequence. Always verify timekeeping and confirm data changes before calculating gross pay, apply pre-tax deductions before calculating taxes, and review and approve the register before submitting. Tax filing and GL reconciliation come after employees are paid.
How long does it take to process payroll?
For a small to mid-size team using a modern provider, an experienced person can run a clean cycle in one to three hours of active work, but the calendar timeline is longer because ACH submission usually needs to happen two to four business days before payday. Verification and review take more time than the calculation itself.
What is the difference between gross pay and net pay in payroll?
Gross pay is total earnings before any deductions: regular wages, overtime, bonuses, and commissions. Net pay is take-home pay after subtracting pre-tax deductions, tax withholdings, and post-tax deductions. Net pay is the amount that actually hits the employee's bank account.
What is a payroll register and why do you review it?
A payroll register is the full preview of every employee's gross pay, deductions, taxes, and net pay for a given run. You review it before submitting to catch errors while they're still fixable, comparing totals to the prior run, spot-checking changed employees, and looking for outliers like $0 or negative checks.
What are pre-tax versus post-tax deductions in payroll?
Pre-tax deductions like traditional 401(k), health premiums, and HSA contributions are subtracted from gross pay before taxes are calculated, lowering taxable wages. Post-tax deductions like Roth 401(k), union dues, and garnishments are subtracted after taxes are calculated. Applying them in the wrong order miscalculates withholding.
What payroll taxes do employers have to remit and file?
Employers deposit withheld federal income tax and FICA (Social Security and Medicare) on an IRS schedule, remit state and local taxes on their schedules, file quarterly returns such as Form 941, and handle year-end W-2s and reconciliations. Even when a provider automates this, the legal responsibility and penalties stay with the employer.
How do you handle garnishments during payroll processing?
Garnishments such as child support or wage levies are post-tax deductions with legal rules about priority order and maximum withholding percentages. Apply them after taxes are calculated, follow the order specified in each court order, and document the exact handling in your written procedure so it is never left to memory.
How do you avoid payroll processing errors?
Most payroll errors come from unverified timekeeping data, missed mid-period changes, or steps done out of order. Prevent them by verifying timesheets before calculating pay, locking in all employee and rate changes before the run, requiring a two-person review of the payroll register before submission, and documenting the exact process in your system.
Should payroll be documented as a standard operating procedure?
Yes. Payroll is a high-risk, repeating process where the cost of one person being unavailable is missed pay and compliance penalties. Documenting the exact steps in your actual payroll system as a standard operating procedure removes the single point of failure and lets anyone on the team run the cycle correctly.
