How to Manage Payroll for Your Business (2025 Guide)

Payroll management rarely makes headlines. But when it does, it’s because something’s gone horribly wrong.

Like in San Francisco, where a teachers union filed a formal labor complaint after a payroll system upgrade left more than 100 teachers underpaid for months. Or in Wales, where a payroll clerk embezzled approximately $26,000 in wages by editing payee details and forging payslips.

The task may be routine, but the stakes are high. That’s why the payroll and HR services market is big: set to jump from $32.1 billion in 2025 to almost $66 billion by 2035.

To help, this guide walks you through how to manage payroll for your business in 2025—whether you’re hiring your first employee or scaling teams across multiple locations.

Why effective payroll management is so important

Payroll is the total amount of wages you pay your employees for the work they’ve done in a set period of time. It’s usually scheduled weekly, every two weeks, twice a month, or monthly.

But payroll is more than paying accurate wages. You also need to:

• Collect employee data
• Calculate net pay
• Report, withhold, and pay taxes
• Stay compliant with tax and labor laws
• Keep accurate, detailed payrolled records

Payroll impacts reputation, retention, and revenue:

• The SEC slapped 12 firms with a combined $63 million in fines for recordkeeping failures. The world is watching how you handle people’s pay. You may not be a giant investment firm—but if word gets out you don’t pay people correctly or on time, it sticks. 
• In a 2024 survey by Remote, 47% of employees said late pay triggered stress or anxiety, the most common emotional response. This stress increases attrition and erodes employees’ trust in their employer. Forty-two percent said their relationship with their employer got worse after a payroll mistake. 
• A company with 1,000 employees could lose over $922,000 a year cleaning up payroll problems. For a 5,000-person enterprise, that figure climbs to more than $4.5 million in lost productivity.

🧠Learn: Retail Staff Management: Tips, Skills & Responsibilities for Managers

How to manage payroll: Seven essential steps for your retail business

Here are the seven steps to set up and manage payroll for your business: 

1. Register for an Employer Identification Number (EIN)

First, you need an employer identification number, or EIN, to hire and pay employees. Your EIN is unique to your company. Think of it as the business version of a Social Security number.

An EIN is also known as an employer tax ID or a federal tax identification number. Use it to report taxes and other relevant information to the IRS.

Using the online application is the easiest and fastest way to register for your EIN. The site validates your information during the session and assigns your EIN immediately.

Or, you can apply by faxing or mailing a completed SS-4 form to the correct number or address. You’ll receive your EIN within four business days if you fax the form, or within four weeks if you mail it in.

2. Collect W-4s and other employee information

Next, you must collect Form W-4 for every employee you hire. This is also called an Employee’s Withholding Certificate. 

Each employee has to submit Form W-4 no later than their first day of employment. They complete this form based on factors like marital status, dependents, other jobs or income, and deductions. The responses help you withhold the correct federal income tax from their paychecks. 

Here’s what else you’ll need to collect and protect:

• Bank account details for direct deposit
• Full legal name, SSN (or ITIN), and mailing addres.
• State tax withholding forms, if required (e.g., California’s DE 4)
• Employment classification (W-2 employee vs. 1099 contractor)
• Start date, job title, and compensation details
• Voluntary deductions, like retirement contributions or health premiums
• Work eligibility documents, such as Form I-9 in the US

Depending on your location, industry, or benefits offered, you may also need union membership status, wage garnishment information, or insurance enrollment forms.

3. Establish a payroll schedule

A payroll schedule refers to how often your employees get paid. Common payroll schedules include:

• Weekly: Once a week (52 paychecks per year)
• Biweekly: Once every other week (26 paychecks per year)
• Semimonthly: Twice a month (24 paychecks per year)
• Monthly: Once a month (12 paychecks per year)

There’s no federal law that regulates how often you should pay your employees, but each state has its own law around the minimum pay frequency.

For example, in Arizona you must pay your employees no more than 16 days apart (semimonthly). Meanwhile, Oregon and North Dakota mandate at least one monthly payment. Make sure to check the state payday requirements when defining your payroll schedule.

To choose the best pay period for your business, consider these three factors:

• Cost and time: Every payroll run has a price. Weekly payroll runs cost more, because you pay your team 52 times a year instead of 12. Providers often charge per run, so more runs equals more fees. Monthly costs the least.
• Employee preferences: Hourly employees tend to prefer weekly paychecks.Salaried employees tend to favor the predictability of biweekly pay. It’s also the most common US employee pay schedule. Monthly is often least preferred.
• Payroll and accounting logistics: Semimonthly and monthly schedules cut the workload because there are fewer runs. They also play well with benefits calendars, month-end accounting, and reporting.

4. Decide how you'll pay employees

The common methods for paying employees are direct deposit or a paycheck. You may offer only one option or to let your employees choose their preferred method of payment. 

Regardless, figure it out during the hiring process. On an employee’s first day, make sure you have all the information you need to pay them on time. 

5. Calculate employees’ gross pay per period

Gross pay is what your employees make before taxes and withholdings. Calculating gross pay for salaried employees is simple. Divide their annual salary by the number of pay periods to determine the gross pay per paycheck. 

For hourly employees, calculate the total hours they work per pay period. Then multiply it by their hourly rate. 

6. Withhold and submit payroll taxes: Federal, state, and local

Once you’ve run payroll, you need to pass along the appropriate taxes to the right agencies.

Most US businesses are responsible for withholding and paying three main types of payroll taxes:

• Federal income tax
• Social Security and Medicare (FICA)
• Federal and state unemployment taxes (FUTA and SUTA)

You may also need to collect and remit state and local income taxes. This depends on the location of your business and of your employees.

Here are some resources to help you calculate, withhold, and pay the right taxes:

• Income Tax Withholding Estimator
• Publication 15 (chapter titled “Withholding From Employees’ Wages”)
• Withholding tables

If you’re a US employer, you’ll likely need to file Form 941 (Employer’s Quarterly Federal Tax Return). The forms covers income taxes, Social Security, and Medicare withheld from employee paychecks, as well as your FICA contribution.

Per the IRS, these are the Form 941 deadlines for 2025:

• Q1 (Jan 1–Mar 31, 2025): Due April 30, 2025
• Q2 (Apr 1–Jun 30, 2025): Due July 31, 2025
• Q3 (Jul 1–Sep 30, 2025): Due October 31, 2025
• Q4 (Oct 1–Dec 31, 2025): Due January 31, 2026

7. File tax forms and submit employee W2s (and 1099s for contractors)

Use Form 941 to file your quarterly federal tax return. This form reports income taxes, Social Security tax, or Medicare tax withheld from your employees and the part paid by you.

Because the IRS updates Form 941 often,reference IRS instructions before completing and filing it.

You’re also responsible for filing a FUTA return (Federal Unemployment Tax) each year. 

Every year, you must file employee W-2 forms with the Social Security Administration (SSA). The SSA encourages all employers to file their W-2 forms online, as it helps with speed and accuracy.

For the 2025 tax year, here’s what you should have already submitted:

• Form W-2 (for employees): Filed with the Social Security Administration and given to employees by January 31, 2025.
• Form 1099-NEC (for independent contractors): Filed with the IRS and sent to recipients by January 31, 2025.

If you missed the deadline or discovered a mistake, you may need to file a corrected form or get professional legal or tax advice to handle penalties. 

Common payroll mistakes (and how to avoid them)

In the 2024 Getting the World Paid survey, more than 50% of responding companies cited HR data entry errors as the primary cause of payroll inaccuracy. Other top reasons were lack of standardized HR processes (31%) and messy integrations (26%). 

Pay attention to these areas to prevent errors before they cost you money, momentum, or morale.

1. Depositing employment taxes late

If you don’t pay payroll taxes on time, the penalties can add up fast: late tax deposits cost you 2%–15% of the unpaid amount. Note the rapid growth of penalties—2% for 1–5 days late, 5% for 6–15 days, 10% for over 15 days, and 15% after IRS notices go out.

If you run payroll for a team with mixed roles and pay schedules, such as a combination of hourly floor staff, part-time contractors, and salaried ops managers, it’s complex. You're working with multiple tax deposit timelines and entities. Based on your employees’ earnings, you must calculate and submit federal, state, and local tax payments. 

Federal employment taxes (including withheld income tax and FICA contributions) are due monthly or semiweekly, depending on your deposit schedule. If you miss those dates, the IRS penalty clock starts ticking.

How to avoid it:

• Know your schedule and stick to it.
• Monthly depositors: Taxes are due by the 15th of the following month.
• Semiweekly depositors: Pay by the following Wednesday (for paydays Wed–Fri) or Friday (for paydays Sat–Tues).
• Set recurring calendar reminders. Or better yet, use payroll automation software to do it for you. If you’re switching deposit schedules, you may qualify for a one-time penalty waiver—but you must file the corresponding return (Form 941) on time.

2. Misclassifying hires

Misclassification can cost you $50 for every missing W‑2, 1.5% of all wages paid to misclassified workers, and 40% of FICA not paid by employees.

For intentional misclassification, the IRS can tack on 20% of total wages, 100% of FICA, criminal fines up to $1,000, and even jail time.

How to avoid it:

• Use the IRS rule of thumb. This is how the IRS evaluates whether a worker is an employee or independent contractor:
• Behavioral control: Does your business dictate how the worker does the job through instructions, training, or oversight?
• Financial control: Does your business control the business side of the worker’s job, such as payment method, who supplies tools or covers expenses, and potential profit/loss?
• Relationship factors: Is there an ongoing agreement, employee benefits, or integration of the worker’s services into your regular business?
• Exempt vs. non-exempt status depends on the job duties. Non-exempt workers must be paid overtime. Exempt workers don’t qualify; but only if they pass the duties test under the Fair Labor Standards Act (FLSA).

3. Paying from the wrong state

Each US state has its own rules around income tax, minimum wage, overtime pay, and leave. As the employer, you must apply the laws of the state where the employee physically works. Where you’ve registered your business is irrelevant in this case.

How to avoid it:

• Collect a work location at onboarding, and if you classify roles as remote or hybrid. This should be part of your employee intake process.
• Register to withhold taxes in every state where your employees work. That means filing for a state tax ID and complying with local labor laws.
• Set up your payroll software to calculate based on employee location. Many platforms (like Gusto, QuickBooks Payroll, or other Shopify-integrated tools) allow location-based payroll automation. Use it.

4. Skipped overtime

If a non-exempt employee works more than 40 hours in a workweek, they’re entitled to overtime. That’s federal law. 

Skip it, and you’re looking at civil penalties up to $1,000 per violation, plus any extra fines your state might add.

How to avoid it:

• Use a time-tracking system that logs hours down to the minute. Paper timesheets and “guesstimates” won’t cut it, especially in an audit.
• Know the state’s overtime laws. Some states require overtime after eight hours in a day, not just 40 in a week.
• Audit overtime weekly. Don’t wait until payday—spot and fix errors before they snowball.
• Avoid off-the-clock work. If someone clocks out but keeps working (e.g., replying to texts or closing registers), that time still counts—and must be paid.

5. Missing or sloppy payroll records

W-2s and 1099s aren’t “whenever-you-get-to-it” documents. If you file late or send incorrect information, the IRS penalty ranges from $60 to $330 per form. They base fees on how late you are or whether they think you flat-out ignored the requirement.

Hourly workers are usually the most affected by payroll hiccups, especially if it involves overtime.

Here’s how to avoid it:

• Store all payroll and tax records in one secure, digital system. That includes W‑4s, I‑9s, time logs, pay stubs, benefits deductions, and signed contracts.
• Go paperless whenever possible. Most filing mistakes happen when you scatter things across spreadsheets, PDFs, and inboxes.
• Know the deadlines. For the 2025 tax season, employee W-2s and 1099s for contractors had to be filed and distributed by January 31, 2025. Miss that, and the penalty window opens immediately.
• Audit your records quarterly. A 10-minute check-in every quarter is far cheaper than paying $3,000 in missed W‑2 fines later.

💡Pro tip: Set up a “four-eyes check.” Have one person enter payroll data and another double-check it. It’s a simple internal control to catch errors, keep audits clean, and SOX and SOC 2 compliance requires it.

Best practices to manage payroll efficiently

When it comes to payroll, the goal is the same for all businesses: pay people accurately, and on time. 

Here are top payroll best practices to keep you compliant and above water:

Share a payroll calendar

A payroll calendar is a public, shareable calendar with pay periods, pay dates, timecard due dates, payroll tasks, and holidays.

This helps your employees understand:

• When they’ll get paid
• The period the payment is for
• Potential delays or changes in pay dates (for example, due to a public holiday)
• Their deadlines for submitting timecards

Don’t assume your employees will know these dates by default. More than 50% of employers don’t do anything or use any tools to help employees understand their payslips.

Why would it be any different when it comes to payroll dates? A payroll calendar reduces any confusion (and back-and-forth emails with employees asking for information). Besides, it helps everyone plan budgets and forecast cash flow.

For you, a payroll calendar also calls out key tasks to do, like depositing payments and filing tax forms. This helps pay your employees on time, every time.

"Your financial health depends on how you manage payroll," says Courtney Quigley, business reputation consultant at Rize Reviews. "Manage it with a payroll calendar so you can keep track of important dates, holidays, PTOs. It also helps your staff determine cut-off dates and payday. Share the calendar with supervisors and managers of your store or stores so they can transparently share it with their teams."

Maintain comprehensive employee and payroll records

As you hire help, you’ll generate documents and records for each employee, including:

• General information: Employee name, address, SSN, date of birth
• Tax forms: W-4, state W-4, other withholding forms
• Pre-hiring records: Job application, interview records
• Time and attendance records: Time cards, total hours worked (per day and week), time off taken, remaining time off
• Payroll records: Pay rate, total daily/weekly earnings, overtime earnings, bonus pay and commissions, benefits and deductions, contributions, expense reimbursements, raise documentation, pay periods, pay stubs

Federal law states you need to keep payroll records for three years, and payroll tax records (like unemployment taxes) for four years. Some documents, like retirement income and 401(k) plan details, must be kept for six years.

Make sure to check laws and requirements for payroll record-keeping in your specific state. They might be longer than federal ones. For example, the state of New York requires you to keep payroll records for six years.

Keep paper copies of payroll records, or store them online on your device or payroll software. In both cases, it’s crucial to keep employee and payroll records safe, as they contain sensitive, confidential information.

“Organization is key. It’s critical you maintain squeaky clean payroll records,” says Will Lopez, head of accountant community at Gusto.

“Be sure to dedicate a secure place to keep up to four years of employee I-9 forms, W-2s, W-4s, state new hire forms, copies of all your filed tax forms, and always maintain the dates and amounts of all tax deposits, timesheets, and pay stubs,” Will adds.

“Different states have different requirements when it comes to record-keeping (even for employees who have been terminated), so staying on top of requirements and keeping your records clean and well maintained will make audits run smoothly—this will also help you spot issues before they arise.”

Stay updated on tax and labor laws

Payroll mistakes can cost you hundreds or even thousands of dollars in penalties. You must stay up to date with tax laws and requirements to make sure you:

• File and pay taxes on time
• Process payroll adhering to both federal and state laws
• Calculate and pay correct overtime
• Keep complete and accurate payroll records

It’s a challenge to keep up with ongoing law updates. It’s also challenging to stay compliant during growth. If your business expands into different states, hires remote workers, or employs a mix of full-time employees and part-time contractors, you’ll need to be diligent.

To stay up to date, make a routine to check in with:

• The IRS website
• Your state tax websites (for example, taxes.ca.gov for California and comptroller.texas.gov for Texas) 
• Tax hubs like this one from Deloitte

Appoint a payroll manager 

If you plan to keep your business small but need to offload payroll tasks, this could be a hybrid role for an existing employee or a part-time freelance role.

Or if you want to grow your store and need more robust payroll support, hire a full-time payroll manager, an external accountant, or a payroll service. They’ll do it better, faster and free you to focus on other parts of the business. Plus, as professionals, they keep up with payroll laws and regulations.

“Payroll is complex, which is why you should assemble your Payroll Squad,” says Will. “The key players to involve in your payroll process are: a) your payroll provider, b) an accountant (or other financial professional), and c) an HR business partner.” 

Ask for employee feedback

Make your payroll a two-way street for communication. Openly ask for employee feedback and questions. This prevents you from assuming that they fully understand how payroll works (and they’re happy with it).

Prompt employee feedback by asking:

• Do you have any questions or concerns around using or submitting time cards?
• Would you like to better understand your payslips?
• Do you have suggestions around payroll schedules?
• Is our payroll calendar clear and easy to navigate? Is there anything missing from it?

Payroll affects everyone in your company, so most everyone will have something to say. It’ll help you improve how employees get paid, as well as strengthen your rapport with them. 

Use the questions and feedback to create internal documents and a FAQ explaining your payroll process and its impact on employees.

Implement robust payroll security measures

Payroll means people’s livelihoods, and it’s packed with sensitive data like salaries, tax IDs, bank info, benefits, and addresses. As such, HR information like this is a prime target for cybercriminals. According to People Management magazine, four in five data breaches involve employee information.

Meanwhile, about half of small business owners still run payroll off a shared spreadsheet or an unencrypted desktop folder.

Here’s how do it smarter (and safer):

• Use a payroll provider that plays nice with your existing tech stack. Apps like Gusto, Deel, or QuickBooks Payroll integrate with your Shopify store, with secure syncing of hours, pay, and contractor invoices. Most offer SOC 2 or ISO 27001-level compliance out of the box.
• Restrict access based on roles. Only give payroll visibility to the people who need it. Shopify’s staff permissions help you control access at every level, including third-party apps.
• Store payroll files in the cloud, not on your desktop. Make sure it’s backed up, encrypted, and access-logged. Bonus points if your payroll provider builds in automatic W-2/1099 filing.
• Educate your team on data hygiene. This means no emailing unencrypted pay stubs. No screenshots of payroll dashboards. And definitely no sharing passwords to "just check something quickly."
• Run quarterly access audits. Team turnover happens, but permissions updates are often overlooked. Clean up your admin list every three months. Make it part of your quarterly workflow.

Integrate payroll with other business functions 

Payroll should neither live in a vacuum nor in a million tabs on your browser. It needs to sync with HR, accounting, and time-tracking platforms. This way you’re not double-entering or chasing spreadsheets.

• Accounting tools like QuickBooks and Xero automatically grab your Shopify sales, fees, and expenses and sync them with payroll. That means one less reconciliation task at month-end. Apps like Link My Books or A2X bridge the gap between Shopify's POS or online store and your accounting books.
• Time-tracking tools built into your Shopify POS, like EasyTeam or PTT: POS Time Tracker, let your team clock in and out at the register. You get accurate records for every shift, which flow straight into payroll. Also worth checking out: ClockedIn.
• When your HR system talks to your payroll tool, everything from job titles to PTO balances update automatically. Tools like Gusto integrate seamlessly with Shopify to onboard new hires, track benefits, and sync pay changes, without manual edits.

📚Read: How to Do Small Business Accounting in 2025 (+ Best Tools)

Choosing the right payroll system for your business

Payroll’s not one-size-fits-all. What works for a five-person team won’t cut it at scale. Let’s break down the real options and how to choose the one that fits your workflow, budget, and headcount.

1. Manual/DIY payroll

Best for: Micro-businesses, early-stage side startups, or teams of one

A spreadsheet and a calendar reminder—that’s how a lot of small retailers start. And to be fair, if you’ve got one employee and zero budget, manual payroll can work…for a while.

Pros:

• Cost-effective; you don’t pay for a service, tool, or another person to do payroll.
• Lots of control and insights into your revenue, cash flow, and payroll expenses.

Cons:

• It’s time-consuming and hiring even one more employee adds extra tasks to your already full plate.
• You can make errors and pay significant fines if you don’t catch them on time.
• It’s your responsibility to stay up to date on tax laws and regulations.

“DIY works when you have a small team, but it gets unmanageable as you grow. Not just because it’s time-consuming, but it opens up room for error,” says Lanai Moliterno, CEO and founder of Sozy. 

As your team grows or your tax needs get more complex, DIY payroll becomes more stress than it's worth. The money you think you're saving, you're paying for in time, anxiety, and potential fines.

If payroll prevents you from tending to or growing your business, it may be time to get help. It’s better to focus on your strengths.

2. Payroll software

Best for: Businesses with multiple employees, hourly teams, or anyone who wants to save time and avoid penalties

A good payroll management system automates what comes before and after payday. Here’s what the best tools offer:

• Automated tax calculations and filings at the federal, state, and local level
• Direct deposit so your team gets paid on time, every time
• Time-tracking integrations with your POS or scheduling system (like EasyTeam or QuickBooks Time)
• Employee self-service portals to reduce back-and-forth for paystubs, W-2s, and bank detail updates
• Built-in payroll compliance alerts that flag errors before they become IRS problems

“Using payroll software puts so much into automated mode and safeguards your time and business from lawsuits and expensive mistakes. It’s a small extra expense, but it pays off in the long run with the time you save and the peace of mind you get,” adds Lanai.

Pros:

• You have lots of control and insight into data, reports, filings, history, and more.
• You have easy access from all devices thanks to being cloud-based.
• It’s affordable, with many options priced under $40 per month.

Cons:

• You’re still liable for any errors. A payroll software provider doesn’t assume your responsibilities to file and pay taxes, pay employees, or keep records.
• There’s a possible learning curve, depending on your platform of choice.

Consider these four questions when choosing payroll software:

1. Does it support your team’s pay structure (hourly, salaried, commission)?
2. Can it handle taxes across all the states/counties/countries where you operate?
3. Does it offer integrations with your accounting, time tracking, or HR stack?
4. What’s the total cost per employee or per month, and does it scale with your business?

If you’re on Shopify, you’ve already done half the work. Instead of stitching together disconnected tools, tap into Shopify’s app ecosystem to manage payroll without adding extra platforms.

💡Pro tip: Need to whip up a paycheck fast? Shopify’s free pay stub generator lets you create professional pay stubs in minutes. It’s a handy tool for small teams or one-off payments when you’re not ready for full-scale payroll software yet.

3. Hiring an accountant (in-house or external)

Best for: Retailers who want expert oversight and tailored financial advice without doing the number crunching themselves

You can hire an in-house accountant or an external contractor to prepare your accounts, keep track of your finances, and manage your payroll. Payroll outsourcing lets you offload it to professionals who do it daily.

If you hire internally, this person could manage payroll manually or use payroll software—both options work. If you hire an external accountant, they’ll have their own process and setup for managing their clients’ payroll.

Pros:

• You get extra time and focus, as you’ll offload dozens of tasks and reminders from your to-dos.
• It removes stress and pressure from you to stay current on laws and handle payroll yourself.
• You’ll have a go-to person for finances, taxes, compliance, record-keeping, and more.

Cons:

• You have less control over your filings and documentation.
• It can be costly and disrupt your cash flow, especially if you bring a full-time employee on board.

If you choose this option, spend enough time looking for the right person. Ask for recommendations from fellow store owners and entrepreneurs. Look up reviews, ask for references, and take the time to confirm the person fits your needs. 

This is one hire with the potential to impact your business in a dramatic way. Offload the tasks, but stay informed.

4. Payroll services

Best for: Busy store owners who want to outsource all payroll, tax filing, and compliance to a trusted provider

Payroll service providers, or payroll management companies, provide a way to delegate your payroll management to a team of professionals. They calculate your payroll, file tax statements, deposit payments to employees, process new hires, and more.

Pros:

• There’s zero payroll-related stress on your plate, as you have a team of people handling every detail of your payroll management.
• There’s enhanced assistance for businesses that grow and change rapidly, hire remotely, and/or operate stores in different states and countries.

Cons:

• They are costly to engage, and can get more expensive as you grow and need more support with payroll and compliance.

While they serve businesses of all sizes, payroll services are usually best suited for medium and large stores, due to the scale of expertise and support they provide.

Please consult independent legal advice for information specific to your country and circumstances. Shopify is not liable for your use of this content.

This post is for information purposes only. You are responsible for reviewing and using information appropriately. This content doesn't contain and isn't meant to provide legal, tax, or business advice.

Legal requirements are updated frequently and you should make sure to do your own research and reach out to professional legal, tax, and business advisers, as needed. Your local state, province, or county will have different steps and requirements.

To sell products using the Shopify platform, you must comply with the laws of the jurisdiction of your business and your customers, the Shopify Terms of Service, the Shopify Acceptable Use Policy, and any other applicable policies.