Payroll
What is Payroll?
Payroll is the process of calculating and distributing employee compensation, withholding taxes, and filing required government reports. Modern payroll software (Gusto, Rippling, Justworks) automates tax filing, benefits, and compliance — turning what used to be a monthly headache into a background process for small businesses.
Definition
Payroll covers gross-to-net calculation, tax withholding, benefit deductions, direct deposit, and quarterly/annual filings across federal, state, and local jurisdictions.
Key Facts
- Gusto, Rippling, and Justworks dominate the SMB payroll space.
- Payroll penalties from late filings are the #1 avoidable SMB tax expense.
- Contractor payments (1099) are a growing category alongside W-2.
Practical Example
A 12-person agency moves from a manual spreadsheet to Gusto. Payroll runs go from 4 hours to 15 minutes, and year-end W-2s are delivered automatically with zero errors.
Why It Matters
Payroll mistakes create tax penalties, unhappy employees, and legal risk. Automation eliminates all three.
How It Works
- 1Enter employee details and pay rates once.
- 2Software calculates gross pay, taxes, and deductions.
- 3Direct deposit funds employee accounts on payday.
- 4Taxes are filed automatically each quarter and year.
Advantages
- Automatic tax filings.
- Integrated benefits and time tracking.
- Scales from 1 to 100 employees with the same UX.
Common Mistakes
- Misclassifying employees as contractors.
- Missing state registration in new hire states.
- Not reconciling payroll with accounting monthly.
Frequently Asked Questions
How much does payroll software cost?
How much does payroll software cost?
Entry SMB plans start around $40 per month plus $6–$12 per employee.
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