The ultimate payroll checklist (+ free download)

Timely paychecks keep your people satisfied and help your company stay compliant. However, getting payroll right every time can be challenging. According to recent data, payroll errors are widespread: almost 40% of employees experienced a payroll issue in the last year.*

Common issues like underpayment, incorrect deductions, late payment, and incorrect personal information can lead to dissatisfaction and compliance risks. But with a clear payroll process, you can avoid these pitfalls and create a seamless payroll experience.

In this article, we’ll guide you through the steps of payroll management — from preparation to post-processing audits. And, if you’re looking for a comprehensive payroll checklist to keep handy, we’ll provide one of those (for free), too. 

*Remote, 2024

💸 There’s an easier way to run payroll

Use our free payroll checklist to ensure you never miss a beat — and avoid costly mistakes.

👉 Download the checklist

Our free, downloadable payroll checklist 

Payroll preparation has many moving parts, but breaking it down into clear steps can help.  Use our comprehensive, 13-step payroll checklist to ensure every stage is accounted for, whether you’re running payroll for the first time or auditing existing processes.

💡 Pro tip: Consult a local tax and compliance expert to ensure your payroll process meets all regulations that apply to your business.

📝 Secure your payroll strategy with time-tested best practices

Our free checklist can help make your payroll process smooth and effective, every time. 

👉 Download the checklist

How to process payroll within your organization

We’ve broken down the above payroll checklist into six key categories to help you better understand and implement the steps effectively. Whether you’re setting up payroll processes for the first time or auditing your current setup, these categories will guide you through creating a smooth, compliant payroll workflow.
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Before you start: Set up payroll foundations

Before diving into payroll processes, ensure your organization has completed all necessary setup steps to establish a compliant and efficient payroll system:

• Register with tax authorities — Obtain employer identification numbers or tax IDs (e.g., EIN in the United States) to accurately report tax withholdings and contributions.
  
  
• Enroll in mandatory systems — Depending on your region, register your business with government agencies for labor regulations, social security, or healthcare contributions.

Completing these foundational tasks ensures you’re ready to process payroll with confidence and compliance.

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1. Gather and consult up-to-date employee data and compliance requirements

The foundation of successful payroll processing is accurate and complete employee data, coupled with compliance with local tax and labor regulations. Employee data is typically collected during onboarding and stored in your human resources information system (HRIS). 

To set up a solid foundation, ensure the following steps are part of your process:

• Collect key employee information — During onboarding, gather essential details such as full legal name, address, tax identification number (e.g., Social Security number in the US), bank account details, and benefits enrollment.
  
  
• Ensure employee classification — Accurately categorize employees as full-time, part-time, temporary, or on leave. Employee classification impacts everything from tax withholdings to benefits eligibility, making it a critical compliance area.
  
  
• Record tax withholding preferences — Ensure employees provide the necessary tax forms for their region, such as the W-4 form in the United States. Update these records promptly if their filing status changes.
  
  
• Schedule and maintain future changes — If you anticipate changes such as promotions and salary adjustments, use scheduling features in your HRIS to ensure they’re reflected in payroll when the time comes. Preparing for future updates ahead of time keeps your payroll process clean and reduces errors.
  
  
• Verify and maintain up-to-date records — Review employee data regularly to account for promotions, location changes, or other updates.

🤩 Today’s HR professionals need to prioritize strategic, big-picture work, rather than getting caught up with manual tasks that could easily be automated.

A great way to facilitate this is by adopting a people-centered HRIS like Leapsome. With features like a self-service portal for employees and scheduling tools for future changes, Leapsome helps you streamline data management and keep your payroll process error-free.

2. Define and implement payroll policies

Effective payroll management starts with clear, comprehensive policies that guide every stage of the process. Payroll policies support consistency, legal compliance, and alignment across teams while reducing errors and confusion. Here’s what to include in a well-structured policy:

• Define payroll cycles — Establish your organization’s pay frequency (pay cycles). Clearly outline deadlines for timesheet submissions, approvals, and processing to avoid delays. Confirm this schedule with your finance team to ensure alignment and avoid disruptions.
  
  
• Set overtime and bonus rules — Clearly state how overtime hours, holiday pay, or bonuses will be calculated and approved. Specify thresholds for overtime eligibility, rates, and the process for logging extra hours.
  
  
• Clarify tax compliance and regional variations — Ensure your payroll policy accounts for mandatory tax regulations in all relevant regions. This is especially important for businesses with remote employees or international teams, where tax obligations may vary.
  
  
• Communicate employee classifications and eligibility — Clearly define staff classifications (e.g., full-time, part-time, temporary, on leave) and detail which benefits or policies apply to each group. Misclassification can lead to compliance risks, so accuracy here is critical.
  
  
• Outline off-cycle payment rules — Determine how your organization will handle corrections, reimbursements, or one-time payments outside of regular pay schedules. Include clear escalation procedures for urgent situations. These are known as “off-cycle payments.”

By defining and documenting these elements, your payroll policies will serve as a reliable reference for both HR and employees, reducing confusion and improving compliance.
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3. Calculate employee pay, withholdings, and deductions 

💡 If you work with an external payroll vendor, they will typically handle these calculations, including processing and transferring mandatory contributions like taxes and social security. However, it’s still important to ensure all adjustments (e.g., bonuses or unpaid leave) are correctly reflected in the data you provide to your vendor.

Once your payroll policies are defined and documented, the next step is to calculate compensation accurately. This involves determining gross pay, mandatory withholdings, and voluntary deductions. Follow these guidelines to ensure compliance and consistency:

• Calculate gross pay — For salaried employees, divide their annual salary by the number of pay periods. For hourly staff, multiply hours worked by their hourly rate, including any overtime as required under your policies and applicable law.
  
  
• Include adjustments for bonuses, commissions, and unpaid leave — Review timesheets, bonus-related performance data, and leave records to account for any extra payments or deductions.
  
  
• Determine mandatory withholdings — Depending on your region, this might include income tax, social security contributions, or similar obligations.
  
  
• Factor in voluntary deductions — Process employee contributions to retirement plans, healthcare, or other benefits.

🧩 We get it: deductions may seem tricky at first! Check out our guide on employer payroll taxes and consult a legal or tax professional if you have any doubts.

4. Process and issue payments

The time has finally come to send out payments. This is understandably one of the most critical steps in payroll processing, so it’s essential to get it right. These are our recommendations:

• Process payroll through your chosen system — Use a payroll solution to streamline payroll tasks, such as compiling data and generating payslips. Automation reduces the risk of manual errors, saves time, and ensures consistency.
  
  
• Issue payments — Pay employees through your company’s established method (e.g., direct deposit, check) and ensure they receive their compensation on the agreed-upon date. Late payments can harm morale and erode trust.
  
  
• Handle off-cycle payments as needed — Occasionally, you may need to process reimbursements or correct errors outside the regular pay schedule. Establish clear protocols for handling these exceptions efficiently.
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• Communicate payment details — Provide clear, detailed payslips showing gross pay, deductions, net pay, and any additional adjustments. This ensures transparency and helps employees understand their compensation.

⭐ Managing payroll cycles from end to end can be very time-consuming, especially for startups and smaller businesses with limited in-house resources. Luckily, payroll automations can help you do more with less!

Leapsome’s new HRIS with payroll features empowers People teams to generate and assign payroll policies, launch payroll cycles, distribute payslips, and create reports — eliminating a great deal of manual work from HR team members’ desks.

5. Take care of paperwork and maintain records for compliance

Compliance is the cornerstone of effective payroll management. Failing to adhere to tax and labor laws can result in extraordinary audits, fines, and reputational damage. While specific requirements vary by locality, these are the key areas to focus on:

• Retain payroll records — Store detailed records of all payroll transactions, including payslips, tax filings, and employee benefit contributions. Local laws often dictate how long you must keep these records.

• File taxes accurately and on time — Most countries (and states, where applicable) require employers to submit tax forms detailing withholdings and contributions for each tax period. 

• Generating payroll reports — Employees should always have transparent information about their pay. Distributing accurate payslips and payroll reports ensures they understand how their net pay is calculated. These payroll reports are also sometimes necessary for compliance.

• Review regulations regularly — Labor and tax laws can change frequently. Stay informed about updates in your operating regions, especially if you have remote employees across different jurisdictions.

• Audit your payroll system — Conduct regular audits to identify discrepancies, outdated data, or inefficiencies in your process.

Maintaining accurate records is essential to meet your legal obligations and ensure your business is audit-ready, and it gives employees the transparency and peace of mind they deserve.
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6. Monitor payroll performance and improve processes

Payroll management is an ongoing process, and regular reviews can help you identify areas for improvement. Monitoring payroll performance ensures accuracy and supports long-term efficiency. Key actions include:

• Track relevant payroll metrics — Monitor payroll metrics such as payroll accuracy rate, error resolution time, and overall processing time.
  
  
• Solicit employee feedback — Ask employees for feedback on their payroll experience, such as how easily they can access their payslips or resolve issues. Leapsome Surveys enables you to do this by sending a one-time survey to help uncover pain points and refine your processes.
  
  
• Stay informed about payroll trends — Evolving technologies like AI, automation, and blockchain are reshaping payroll. Explore payroll trends to keep your system modern and efficient.
  
  
• Document process improvements — If you adjust your payroll system or policies, update your documentation to reflect these changes. This keeps everyone on the same page and ensures smooth transitions.

By taking these steps, you’ll build a payroll system that’s not only compliant but also responsive to employee needs and aligned with your company’s goals.
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Tips for carrying out a smooth payroll process

A strong payroll system is essential for keeping employees satisfied and ensuring compliance. Here are a few tips to help you get payroll right every single time:

• Prioritize user-friendly, people-centered payroll tools — HR software with people enablement features can help you strengthen the employee experience (EX) and empower your people to really use your tools (instead of ignoring them!).
  
  Leapsome’s HRIS is a standout solution, with people enablement and HRIS functionalities (including payroll and time-tracking tools) in a single platform — just one touchpoint for all things People management!

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• Keep thorough records — Keeping thorough payroll records ensures you’re prepared for audits and helps avoid fines, but as your organization grows, managing employee data can become overwhelming. To stay ahead, consider adopting a scalable document management solution that evolves with your business. 

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• Train your employees — Payroll errors are less likely to occur when HR team members really understand how your payroll processes work. Using a tool like Leapsome Learning makes this easier, as you can build tailored courses for your team’s needs.

Build a winning payroll strategy with Leapsome

When it comes to processing payroll, reliability is priority #1. Most employees live paycheck-to-paycheck, so unexpected disruptions to a payroll schedule can be disastrous. Meanwhile, businesses that neglect to update payroll records or employee data risk frustrating team members, operating in a non-compliant manner, and even facing hefty fines. Needless to say, these scenarios aren’t ideal.

By following our payroll checklist, you can rest assured that you’re taking care of your people and your organization. And by leveraging the right HR technology, like Leapsome’s comprehensive HR platform, you can create reliable, efficient, and scalable payroll and compensation strategies.

With seamless workflows and handy automations, Leapsome ensures accuracy and consistency and helps HR leaders focus on what matters most — prioritizing their people and driving business growth.

🏃 Get payday running smoothly

Leapsome’s comprehensive HR platform can elevate your approach to payroll.

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Disclaimer: This article is for informational purposes only and doesn’t offer legal, tax, or financial advice. While we’ve done our best to ensure accuracy and completeness, we can’t guarantee everything is up-to-date or error-free. For tailored advice, we recommend consulting a qualified lawyer or tax advisor.