Running payroll is one of the most critical responsibilities of any business owner. It ensures that employees are paid accurately and on time while complying with tax regulations. While many businesses rely on payroll software for automation and accuracy, some owners prefer a manual approach to save costs or maintain more control.
So, can you run payroll without software? Yes, but it requires careful attention to detail, legal compliance, and a well-organized system. This article will walk you through the process, the pros and cons, and best practices for managing payroll’s manually.
Steps to Running Payroll Manually
If you decide to process payroll without software, follow these essential steps:
1. Classify Your Employees Correctly
Before processing payroll’s determine whether your workers are employees or independent contractors. Employees receive a regular paycheck and benefits, while contractors are responsible for their own taxes. Misclassification can lead to legal and tax issues.
2. Collect Employee Information and Forms
You’ll need to gather and maintain proper employee documentation, including:
- W-4 Form (for employees) – Determines federal tax withholding
- I-9 Form – Verifies employment eligibility
- State Tax Forms – Required in many states for local tax withholding
- Direct Deposit Authorization (if applicable)
3. Track Employee Work Hours Accurately
For hourly employees, maintain accurate records of work hours, overtime, and paid time off. Use a physical timesheet or spreadsheet to document hours worked.
4. Calculate Gross Pay
Calculate wages based on your employee’s pay structure:
- Hourly Employees: Hours worked × Hourly wage
- Salaried Employees: Annual salary ÷ Number of pay periods
5. Determine Payroll Deductions
You must withhold specific amounts from each paycheck for:
- Federal and State Income Taxes
- Social Security and Medicare (FICA taxes)
- Employee Benefits (health insurance, retirement plans, etc.)
- Wage Garnishments (if applicable)
Use IRS tax tables and state tax guidelines to determine the correct amounts.
6. Calculate Employer Payroll Taxes
As an employer, you must also pay:
- Social Security and Medicare (matching the employee’s contributions)
- Federal Unemployment Tax (FUTA)
- State Unemployment Tax (SUTA, varies by state)
7. Write and Distribute Paychecks
Once deductions and taxes are calculated, you can either:
- Write physical paychecks
- Process direct deposits through your bank (manually)
It’s also important to provide employees with pay stubs detailing earnings and deductions. If you’re handling payroll’s manually, you can use a check stub maker online to generate professional pay stubs quickly and ensure accuracy.
8. File and Pay Payroll Taxes on Time
Payroll’s taxes must be reported and paid regularly:
- Federal Tax Deposits – Submitted via the IRS Electronic Federal Tax Payment System (EFTPS)
- Quarterly Payroll Tax Reports (Form 941) – Reports federal withholdings and employer taxes
- Annual Tax Forms (Form W-2 and Form 1099-NEC) – Sent to employees and contractors for tax filing
- State and Local Tax Filings – Check state-specific deadlines and requirements
9. Maintain Payroll Records
The IRS requires employers to keep payroll’s records for at least four years. These records should include:
- Employee details and tax forms
- Pay stubs and payment records
- Tax filings and deposits
Pros and Cons of Running Payroll Without Software
✅ Pros:
✔ Cost Savings – No need for monthly payroll’s software fees
✔ Full Control – Manage every aspect of payroll’s without relying on third parties
✔ Customization – Flexible payroll handling for unique business needs
❌ Cons:
❌ Time-Consuming – Manually calculating taxes and deductions takes significant effort
❌ Higher Risk of Errors – Mistakes in tax calculations can result in penalties
❌ Compliance Challenges – Staying updated on tax laws requires extra attention
Best Practices for Manual Payroll Management
- Stay Organized: Keep detailed records of all payroll transactions.
- Use Payroll Calculators: Utilize free online tools to estimate taxes and deductions.
- Set Reminders for Tax Deadlines: Avoid penalties by filing and paying on time.
- Consult an Accountant: Even if you handle payroll’s manually, a professional can ensure compliance.
Final Thoughts: Should You Use Software or Not?
While you can run payroll manually, it requires discipline, organization, and knowledge of tax regulations. If you have only a few employees and want to save money, manual payroll might work. However, for larger businesses, using payroll software can reduce errors, save time, and ensure compliance.
If you’re unsure, consider outsourcing payroll or using a simple, low-cost payroll service to ease the burden while maintaining control. The key is to choose the method that best suits your business needs.
