To make an employee payroll check, you calculate the worker’s gross pay for the period, subtract federal and state tax withholdings along with any authorized voluntary deductions to get net pay, and then issue a check drawn on your business account that carries the payee’s name, the exact amount in figures and words, the date, and an authorized signature. That single sentence hides several days of setup and a running set of tax obligations behind each payment, so it’s worth walking through the full sequence before your first payday.
Paperwork You Need Before the First Check
You cannot legitimately cut a paycheck until four things are in place.
First, an Employer Identification Number. The IRS will not process an employment tax return or deposit without one, and late deposits caused by a missing EIN carry their own penalties.1Internal Revenue Service. Employment Tax Due Dates The online application on the IRS website issues the number immediately.
Second, a signed Form W-4 from every new employee, on or before their first day of work.2Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source The 2026 form captures filing status, multiple-job or working-spouse information, dependent credits, and any extra withholding the employee wants taken each period.3Internal Revenue Service. Form W-4 (2026) Employees Withholding Certificate Those entries drive every federal withholding calculation you’ll do for that person. Many states have their own withholding certificate, so check with your state tax agency.
Third, a completed Form I-9 verifying identity and work authorization, done within three days of the start date. Keep it on file for three years after hire or one year after separation, whichever is later.4USCIS. 10.0 Retaining Form I-9
Fourth, a new-hire report to your state’s Directory of New Hires within 20 days of the start date, listing the employee’s name, address, and Social Security number along with your business name, address, and EIN.5Office of the Law Revision Counsel. 42 USC 653a – State Directory of New Hires The reports feed child support enforcement, and missing the deadline draws state penalties.
Step 1: Calculate Gross Pay
Gross pay is where every paycheck starts. How you compute it depends on whether the worker is non-exempt (hourly, entitled to overtime) or exempt (salaried, not entitled to overtime under the FLSA).
For a non-exempt employee, track every hour, pay at least the federal minimum wage for each one, and pay time-and-a-half for anything over 40 hours in a workweek. Your timekeeping method can be a punch clock, spreadsheet, or app, as long as the records are complete and accurate.6U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act (FLSA) For a salaried exempt employee, gross pay is the annual salary divided by the number of pay periods in the year.
Step 2: Withhold Taxes and Deductions
Social Security and Medicare
Withhold Social Security tax at 6.2% of gross wages, up to the 2026 wage base of $184,500. Once an employee crosses that ceiling in year-to-date earnings, stop withholding Social Security tax for the rest of the year. Withhold Medicare at 1.45% of all wages, with no cap.7Internal Revenue Service. Publication 15 (2026), (Circular E), Employers Tax Guide Both rates are set by 26 U.S.C. § 3101.8Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax
Once you’ve paid an employee more than $200,000 in a calendar year, start withholding an Additional Medicare Tax of 0.9% on wages above that threshold, regardless of the employee’s filing status. This one falls entirely on the employee. You do not match it.9Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Federal Income Tax
Federal income tax withholding comes from the employee’s W-4 entries plugged into the tables in IRS Publication 15-T. Take filing status, any claimed credits, and the pay for the period, then look up the withholding using the percentage method or the wage bracket tables.7Internal Revenue Service. Publication 15 (2026), (Circular E), Employers Tax Guide Employees cannot instruct you to withhold a flat percentage or skip withholding; the amount must follow the IRS tables.
State Income Tax and Voluntary Deductions
If your state has an income tax, apply its withholding schedule the same way. After all mandatory taxes, subtract anything the employee has authorized in writing: health insurance premiums, retirement contributions, union dues. Keep the signed authorization on file for each one. Pulling money from a paycheck without written consent creates liability.
Net Pay
Gross wages minus withholdings and deductions equals net pay. That is the number that goes on the check. Log gross pay, each tax amount, every voluntary deduction, and net pay in your payroll ledger for the period. You’ll need those figures for quarterly and annual tax filings.
Step 3: What the Check Itself Must Contain
A paycheck is a negotiable instrument under the Uniform Commercial Code, meaning it must be an unconditional order to pay a fixed amount of money, payable on demand, drawn on a bank.10Legal Information Institute. UCC 3-104 – Negotiable Instrument In practice, that means every check should include:
- Your business name and address
- The name of the bank where the account is held
- The MICR line at the bottom, encoding the bank’s nine-digit routing number and your account number in machine-readable characters
- A unique check number
- The date the payment becomes valid
- The payee’s legal name, spelled to match their ID
- The dollar amount in both figures and words (if the two disagree, the bank pays the written amount)
- The signature of someone authorized on the account
A missing or malformed MICR line will cause bank scanners to reject the check, so this is the field to watch most carefully when you’re setting up printed stock.
Step 4: Print, Write, or Deposit It
Most employers run payroll through software that pulls employee data, calculates withholdings, and prints checks in one pass. Load the printer with security check stock (watermarks, microprinting, or chemically reactive coating that resists tampering) and run a test print to confirm the MICR line and dollar figures land in the correct positions. Misaligned MICR characters will be rejected by the bank.
For a manual check, use permanent ink and fill in every field. Blank payee lines or vague amounts invite fraud. The person authorized on the account signs, and you keep a carbon copy or photograph.
Direct deposit is generally permissible under federal law, though some states restrict whether you can require it as a condition of employment. If you offer it, collect each employee’s routing and account numbers on a written authorization form. The gross-to-net calculation is identical whether you hand over paper or transmit the funds electronically.
Step 5: Give the Employee a Pay Stub
Federal law does not require a pay stub, but most states do, and most require the stub to show at minimum gross pay, each deduction, and net pay. Some states also require hours worked, pay rate, and year-to-date totals. Even where the state is silent, issuing a stub is worthwhile: it heads off disputes and gives you a paper trail if wages are ever challenged.
Pay frequency itself is set at the state level rather than by the FLSA. Most states require at least semimonthly pay. Confirm your state’s rule and hold to a consistent schedule.
What You Owe Beyond the Check
Withholding is only half of your tax burden. You owe a matching share on top of what you deduct.
The FICA Match
For every dollar of Social Security and Medicare tax withheld from an employee, you owe the same amount from your own funds: 6.2% for Social Security (up to the same $184,500 wage base) and 1.45% for Medicare on all wages, a combined 7.65% of gross pay.11Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax You deposit the employee’s share and your match together.12Internal Revenue Service. Depositing and Reporting Employment Taxes
FUTA and State Unemployment
Federal Unemployment Tax is entirely employer-paid. Never deduct it from a paycheck. The statutory rate is 6.0% on the first $7,000 of each employee’s annual wages, but timely state unemployment payments in a state in good standing earn a credit of up to 5.4%, dropping the effective rate to 0.6%, roughly $42 per employee per year.13Internal Revenue Service. Topic No. 759, Form 940 Employers Annual Federal Unemployment (FUTA) Tax Return FUTA is reported once a year on Form 940, due January 31 (or February 10 if all FUTA deposits were on time).14Internal Revenue Service. 2025 Instructions for Form 940
Every state also runs its own unemployment insurance system, with rates that vary by industry and claims history and taxable wage bases from $7,000 to over $78,000. New employers get a default rate until they build enough history for an experience-based one. Your state workforce agency will assign your rate and filing schedule.
Depositing and Reporting Federal Taxes
You don’t sit on withheld taxes until the quarter ends. Deposit them on an ongoing schedule, either monthly or semiweekly, based on your total employment tax liability during the lookback period (July 1 through June 30 of the prior year for Form 941 filers). If that total was $50,000 or less, you deposit monthly. If it exceeded $50,000, semiweekly. New employers with no lookback history start as monthly depositors.15Internal Revenue Service. Deposit Requirements for Employment Taxes
Missing a deposit deadline triggers penalties that escalate from 2% (1–5 days late) to 5% (6–15 days) to 10% (more than 15 days late), and the rates do not stack.16Internal Revenue Service. Failure to Deposit Penalty
Each quarter, reconcile what you withheld, matched, and deposited on Form 941, due the last day of the month following the quarter’s end: April 30, July 31, October 31, and January 31.1Internal Revenue Service. Employment Tax Due Dates17Internal Revenue Service. About Form 941, Employers Quarterly Federal Tax Return
Recordkeeping
Keep basic payroll records (names, addresses, pay rates, hours worked, wages paid) for at least three years, and the supporting documents used to compute wages (time cards, schedules, records of additions and deductions) for at least two.6U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act (FLSA) The Department of Labor can request them at any time.
Willful falsification or other willful FLSA violations can bring a fine of up to $10,000, up to six months in jail, or both, with jail available only after a prior conviction for the same type of violation.18Office of the Law Revision Counsel. 29 USC 216 – Penalties Repeated or willful minimum wage or overtime violations carry civil fines of up to $2,515 per violation.19eCFR. 29 CFR Part 578 – Tip Retention, Minimum Wage, and Overtime Violations Civil Money Penalties Beyond the fines, thin records tilt every wage dispute against you: when you can’t produce evidence of what you paid, courts tend to credit the employee’s account.