Short answer: payroll processing programs calculate pay, withhold taxes, pay employees and produce the filings and records the law requires. The process has eight steps, and for hourly teams most of the errors and wasted time happen in the first three: collecting forms, tracking hours and approving timecards, before the payroll program ever runs.
If you are choosing a payroll processing program or trying to make payroll day less stressful, it helps to see the whole process from start to finish. Here it is in plain English, plus a quick game to check your knowledge.
Test yourself: the payroll steps game
Game: put the payroll steps in order
Drag the cards (or use the arrows on mobile) into the right order, then press Check.
The payroll process in 8 steps
- Collect new-hire forms. Form W-4 for federal withholding, Form I-9 for employment eligibility, state withholding forms and direct deposit details.
- Track hours worked. Non-exempt employees must be paid for all hours worked, so you need accurate clock-ins and clock-outs, breaks and overtime. A mobile time clock, NFC tags or a kiosk make this reliable.
- Review and approve timecards. Fix missed punches, check overtime and approve before the cutoff. See our timecard approval workflow.
- Calculate gross pay. Regular hours, overtime at one and a half times the regular rate for hours over 40 in a workweek (plus any state rules), tips, bonuses and commissions.
- Subtract taxes and deductions. Federal income tax, Social Security and Medicare, state and local taxes, benefits and garnishments. What remains is net pay.
- Pay employees by direct deposit, pay card or check on your regular payday.
- Deposit payroll taxes on the schedule the IRS and your state assign to you.
- File returns and keep records. Quarterly and annual returns, W-2s at year end, and payroll and time records for the required retention periods.
What payroll processing programs automate
Steps 4 to 8 are what payroll programs do best: they apply tax tables, calculate withholding, produce pay stubs, schedule deposits and prepare filings. Full-service programs also deposit and file for you. Steps 1 to 3 are different. They depend on people, devices and managers, which is why they need a time and attendance system rather than more payroll features.
Where payroll errors usually start
- Missing or wrong punches: a forgotten clock-out can add hours that were never worked.
- Unnoticed overtime: discovered after the week closes, when it can no longer be managed.
- Edits without a reason: hard to explain if an employee asks later.
- Retyping hours: copying timesheets into payroll by hand invites typos.
- Late approvals: managers approving everything the night before payroll.
Where EZTime fits
EZTime covers steps 2 and 3. Employees clock in from the app, NFC or kiosk, managers get overtime and break alerts while the week is still open, missed punches are corrected with a reason, and approved, payroll-ready hours are exported to the payroll processing program you use.
See EZTime with your own team
Leave your details and a US team member will reach out, or start your free 14-day trial right away. Plans start at $2 per employee per month.
Frequently asked questions
What are payroll processing programs?
They are software tools that calculate pay, withholdings and employer taxes, pay employees and produce payroll reports and tax forms. Some also deposit taxes and file returns for you.
What are the steps of payroll processing?
Collect employee forms, track hours, approve timecards, calculate gross pay, subtract taxes and deductions to get net pay, pay employees, deposit payroll taxes, and file returns and keep records.
How long does it take to process payroll?
It depends on headcount, pay frequency and how clean your hours are. Teams that approve timecards during the period and import hours automatically spend far less time than teams that collect paper timesheets at the end.
What forms do employers file for payroll?
Common federal forms include Form 941 (quarterly federal tax return), Form 940 (annual FUTA return) and Forms W-2 and W-3 at year end. States have their own withholding and unemployment filings.
How long should payroll records be kept?
Under federal rules, employers keep payroll records for at least three years and time cards for at least two years. The IRS asks employers to keep employment tax records for at least four years.
This article is general information for US employers, not tax or legal advice. Tax rates, wage bases and state rules change; confirm current figures with the IRS, your state agency or a payroll professional.