Payroll checklist: setup, every pay run, each quarter and year-end

Payroll goes wrong at setup more often than at the pay run. If a new hire’s file is incomplete, the first check is computed on defaults, and the fix takes weeks of corrections.

Every hire starts with a withholding form: Form W-4 is the employee’s federal withholding certificate. The IRS tells employers to ask every new employee for a signed one when they start and to make it effective with the first wage payment (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide).

States run their own registries of new hires. Federal law has the employer report each new employee within 20 days of hire, and a state may ask for it sooner (42 U.S.C. § 653a, State Directory of New Hires).

Form I-9 is the employment eligibility form. The employee completes Section 1 by the first day of work (USCIS, Handbook for Employers M-274, 3.0 Completing Section 1), and the employer completes Section 2 within three business days of the start date (USCIS, Handbook for Employers M-274, 4.0 Completing Section 2). The employee picks which acceptable documents to show, and if you copy them you must copy them for every employee (USCIS, Handbook for Employers M-274, 10.2 Retaining Copies of Form I-9 Documents). Use the 01/20/25 edition, or an 08/01/23 edition whose printed expiration date has not passed (USCIS, Form I-9, Employment Eligibility Verification).

Each run follows the same order: gather the inputs, compute, review, pay, then record. Skipping the review is how a doubled bonus or a missed termination reaches a bank account.

The central report is the register: a payroll register is the list, for one pay date, of each employee’s gross pay, deductions, taxes withheld and net pay. You review it before money moves, and you post it to the books afterwards.

For non-exempt staff, hours over 40 in a workweek are paid at not less than one and one-half times the regular rate (U.S. Department of Labor, Wage and Hour Division: Overtime Pay). So the timesheet has to show hours by workweek, not only a total for the pay period.

1. Collect timesheets for hourly staff, signed off by their manager.
2. Enter the changes since the last run: hires, terminations, raises, new Forms W-4, new deductions.
3. Compute gross pay, overtime, pre-tax deductions, withholding and net pay.
4. Compare the register to the previous run and explain every employee whose pay moved.
5. Release net pay and give each employee a pay statement.
6. Post the payroll journal from the register and note the tax deposit due date.

Withheld income tax and both shares of social security and Medicare tax are deposited on a schedule the IRS assigns each year. In this rule, the lookback period is the four quarters ending June 30 of the prior year (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide).

For 2026, the window runs from July 1, 2024, through June 30, 2025 (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide). Federal deposits are electronic, and EFTPS is a free Treasury service for making them (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide).

Federal unemployment tax is the employer’s alone. For 2026, FUTA is 6.0% of the first $7,000 paid to each employee (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide). An employer that paid its state unemployment tax in full and on time gets a credit of up to 5.4%, for a net rate of 0.6% (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide). In a credit reduction state, one that has not repaid federal loans, the rate is higher, and the final list for a year comes out after November 10 (U.S. Department of Labor, ETA: FUTA Credit Reductions).

Form 941 reports the income tax withheld and both halves of social security and Medicare tax for the quarter. Its four filing dates are April 30, July 31, October 31 and January 31 (IRS, Instructions for Form 941).

Before you file, add up the registers for the three months and compare them to the return line by line. Then compare the tax on the return to the deposits that left the bank, using the EFTPS confirmations.

State returns, such as the unemployment wage report, have their own forms and dates set by each state. Keep the client’s state account numbers in the payroll file so a filing is never blocked on a login.

Classification comes first, because it settles whether payroll applies at all. Keep a short memo in the vendor file for each contractor, for example who sets the hours and who supplies the tools.

Pay at least the federal minimum wage of $7.25 an hour, or the state or local rate where it is higher (U.S. Department of Labor, Wage and Hour Division: Minimum Wage). Exempt status is a separate question: a salary alone does not make an employee exempt from overtime, so write down the salary basis and the duties behind each exempt role.

For 2026, social security tax is 6.2% for the employer and 6.2% for the employee on wages up to $184,500, and Medicare tax is 1.45% each with no wage limit (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide). On top of that, Additional Medicare Tax is a 0.9% employee tax on wages above $200,000 in a calendar year, withheld from the pay period that crosses that amount (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide).

Taxable fringe benefits are wages too, such as personal use of a company car, and Publication 15-B explains how to value them (IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits). State rules sit on top of all this: a state may set its own pay-statement content and its own deadline for a final paycheck.

Two federal rule sets overlap here. The IRS asks for employment tax records, and the Department of Labor asks for wage and hour records under the Fair Labor Standards Act.

Under the FLSA, the employer keeps, for each non-exempt worker, items such as hours worked each day, the regular hourly rate, overtime earnings and the pay date (U.S. Department of Labor, Fact Sheet #21: Recordkeeping Requirements under the FLSA). The law does not require any particular format for these records (U.S. Department of Labor, Fact Sheet #21: Recordkeeping Requirements under the FLSA).

These files hold Social Security and bank account numbers. Keep Forms W-4, Forms I-9 and direct deposit forms in the employee file rather than a shared folder, and limit who on the team can open them; a tax practice also follows the safeguards in IRS Publication 4557.

Payroll errors are mostly input errors. The checks below take minutes and stop the mistakes that are hardest to unwind once a quarter is filed.

A replacement W-4 does not have to apply on the next run: Publication 15 says to start using it no later than the first payroll period ending on or after the 30th day after you receive it (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide). For a full review of a client’s payroll, use the payroll audit checklist.

• A raise keyed without a signed rate change: keep the signed letter in the employee file.
• A worker paid as a contractor who looks like an employee: the IRS weighs behavioral control, financial control and the type of relationship (IRS, Independent contractor (self-employed) or employee?).
• Social security tax still withheld after a high earner passes the 2026 wage base of $184,500 (IRS Publication 15 (2026), Circular E, Employer’s Tax Guide).
• A terminated employee left active, so a final check repeats on the next run.
• A new hire never reported to the state registry.

• IRS Publication 15 (2026), Circular E, Employer’s Tax Guide: Sets the 2026 social security rate and wage base, the monthly and semiweekly deposit schedules, the $100,000 next-day rule, the FUTA deposit rule, Form W-4 timing, Form 8655 and the 4-year record rule for employment taxes.
• U.S. Department of Labor, Fact Sheet #21: Recordkeeping Requirements under the FLSA: Lists the records kept for each non-exempt worker, says payroll records are kept at least three years and wage computation records two years, and that no particular form is required.
• U.S. Department of Labor, Wage and Hour Division: Overtime Pay: Covered non-exempt employees are paid overtime for hours worked over 40 in a workweek at not less than one and one-half times their regular rate.
• 42 U.S.C. § 653a, State Directory of New Hires: Employers report each new hire to the state directory no later than 20 days after the hire date, and a state may set its own timing within that limit.
• USCIS, Handbook for Employers M-274, 10.0 Retaining Form I-9: A Form I-9 is kept for three years after the date of hire or one year after employment ends, whichever is later.
• IRS, Independent contractor (self-employed) or employee?: Groups the common-law evidence of control into three categories: behavioral, financial and type of relationship.
• IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits: Explains which fringe benefits are taxable wages and how to value them; group-term life coverage above $50,000 is not excluded.
• USCIS, Handbook for Employers M-274, 4.0 Completing Section 2: Within three business days of the date employment begins, the employer completes Section 2 by examining the documents the employee presents.
• USCIS, Handbook for Employers M-274, 3.0 Completing Section 1: The employee must complete Section 1 no later than the first day of employment.
• USCIS, Handbook for Employers M-274, 10.2 Retaining Copies of Form I-9 Documents: An employer that copies the documents an employee presents keeps the copies with the Form I-9, and must do so for all employees or may violate anti-discrimination laws.
• USCIS, Form I-9, Employment Eligibility Verification: The current edition is dated 01/20/25; an 08/01/23 edition may still be used until its printed expiration date of 05/31/2027, while the 08/01/23 edition expiring 07/31/2026 has run out.
• U.S. Department of Labor, Wage and Hour Division: Minimum Wage: The federal minimum wage is $7.25 per hour; where a state law gives more protection, the employer complies with both.
• U.S. Department of Labor, ETA: FUTA Credit Reductions: Employers in states with unrepaid federal advances face a FUTA credit reduction on top of the 0.6% rate; the final reduction for a year is set after November 10.
• IRS, Instructions for Form 941: Form 941 for the four quarters is due April 30, July 31, October 31 and January 31.