How to Run Payroll Manually

Running payroll is the process of paying employees net wages... Which are gross wages minus deductions.

Today, I'll outline the basic process of how to run payroll manually. Please consider this informational only and not professional advice.

To help demonstrate, let's say you have one employee who's rate is $20/hour and has worked exactly 40 hours for the week.

Calculating gross wages (wages before taxes) is simple.

Multiply the hourly rate times the number of hours. Gross pay = 20 x 40, or $800.00 toward their weekly paycheck.

So far so good.

The next step is to determine what taxes should be withheld from $800.00.

You can do this for free at PaycheckCity.

Here are their four basic steps:

• Enter your company name and address
• Add an employee’s name, home address, and wage info
• Run a payroll and see the tax results
• Print the employee’s check or earnings record

Simple enough?

As further help, you run payroll manually by knowing where someone works, where they live, how often they are paid, what they entered on their W-2, and the cumulative amount of taxes they have paid since January 1st.

Tax tables are ever-changing and must always be updated to stay compliant with the US, state, and local governments. Please keep in mind that PaycheckCity's tables are good, but their free service is for general information only as well.

Then, once a paper paycheck is handed to the employee you are still not done. Your next steps are to pay those withheld deductions plus your employer payroll taxes to each agency in full and on time.

In other words, payroll is only done when employees are fully paid and the agencies are fully paid.

To do it yourself, you have to be detail oriented, and strictly follow the current US, state, and local payroll tax laws.

But if you use modern software, the whole process reduces to one click of a button.

AI Does Not Make Payroll Mistakes

Humans make payroll mistakes.

As we move forward in time, we learn more about what AI can do and what it cannot do.

The first fundamental is knowing AI is software.

As a contrast, traditional software runs using code written in a programming language, while AI runs using human readable instructions.

That's really the difference.

Although it is easy to write, AI will error if you are not careful with the instructions.

Inc. magazine recently published An AI Tool Withheld an Employee’s Paycheck. That’s Really a Human Error, which is a perfect example.

And if curious, the article started from this Reddit post... My company’s new AI payroll bot decided I don’t deserve a paycheck this month

In this story, an employee was not paid a monthly check because an AI system found an error with a time card.

When confronted, the employer responded with "this isn’t a bug but just a part of the learning process" and "it should self-correct next pay cycle". The end result was the employee was told to wait until the next monthly pay cycle to get paid.

This employee did not get paid because of a human mistake, not an AI mistake, AI did what it was programmed to. All the employer had to do was write a paper check.

Back to the point.

Can AI be used to handle administrative tasks? Yes, as long as you program it correctly.

But like any software, it has to be tested, retested, and maintained by a human. As only a human can decide if it is correct.

Here are the final words from the article's author:

"You cannot let AI make decisions for your business. You need a real human. Every time."

I couldn't agree more.

Keeping Payroll In-House

Seems like many payroll companies try to persuade you to outsource your payroll, and not do it in-house.

What does outsourcing payroll mean exactly?

In the not so distant past, it meant having a payroll provider do all the manual work for you. Payroll used to be handled by a staff, so having the work done outside your business made a lot of sense.

But those days are gone, at least for those of us who have kept up.

Payroll is now almost completely automated.

Same thing with bookkeeping, if you use QuickBooks, does that mean you are outsourcing? No, not at all, unless you hire a freelance bookkeeper or firm to maintain it for you.

Here are a few reasons you should keep payroll in-house:

• Greater control
• Time saving
• Increased transparency
• Improved efficiency
• Lower costs
• Reduced errors
• Greater accruacy

All you need is modern software (like ours) using a web browser.

Time, Payroll and AI Adoption

As you might imagine, we are keeping an eye on the AI crazy train, at least in regard to payroll and time tracking.

Currently one of the biggest challenges to adopting AI is not the technology itself, it's not knowing what to do with it.

In a recent study by Gallup, Manager Support Drives Employee AI Adoption, the question was asked... What Prevents AI Adoption?

In a nutshell, 75% of respondents found barriers against it, while only 25% did not. The number one reason being unclear of the value.

• 16% - Unclear use case or value proposition
• 15% - Legal, compliance or privacy concerns
• 11% - Lack of training or the right knowledge/skills
• 8% - Other
• 6% - Cost of investment
• 5% - Lack of leadership alignment or strategic direction
• 4% - Resistance among employees
• 4% - Limited organizational capacity for change
• 3% - Lack of materials, resources or tools
• 3% - Lack of access to high-quality or usable data
• 25% - None of the above (No barriers)

In the opening paragraph, Gallup also mentions "only a small fraction of firms have applied it in ways that have meaningfully affected their business"... "just 5% of organizations report measurable ROI from their investment in generative AI".

Only 5%?

So if AI is not making a real dent in ROI, and folks dont know what to do with it, where do things go from here? According to Gallup, it is up to management to lead the push towards adoption... "managers are uniquely positioned to champion AI by modeling its use, answering questions and showing how it connects to employees' daily work."

Hold on a second...

First, wouldn't it be better to assure employees they won't be replaced by AI?

Then wouldn't it be better not to push employees who are resistant to it? Because it might scare them?

And before you do all that, wouldn't it be better to know exactly why you are using it in the first place? To do what exactly? Certainly not to write a blog post, this one is totally human :)

For now at least, payroll and time tracking are handled by software, not AI. However there have been examples of AI being used for data entry, fraud detection, chatbots, and data analysis.

Tracking Hours for Payroll

According to the U.S. Bureau of Labor Statistics in the article Characteristics of minimum wage workers, 2023, nearly 60 percent of all US wage and salary workers in 2023 where paid by the hour.

So it makes sense most small businesses with employees have at least one hourly employee on payroll.

If that describes you, then tracking employee hours is probably a good idea. Not just for calculating payroll, but for compliance too.

The Fair Labor Standards Act (FLSA) requires employers to accurately track all hours worked by non-exempt employees (hourly) to ensure proper overtime pay, and to keep them for at least three years. However it does not specify how.

If curious, the FLSA published Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA).

You could keep records with pen and paper if you wanted, but it may not be the best choice, especially if you are trying to speed up your administrative process.

To make things speedy, accurate, and easy to report, your best bet is using time clock software available online.

Whether AI will be used for this is anyone's guess, but not yet.

Why Employers Use Payroll Providers

The purpose is to relieve employers from complicated, administrative tasks.

It's important to point out that payroll is nothing new, folks have been getting paid for their labors for centuries.

However an event happened in the US less than 100 years ago that dramatically changed payroll and made it what it is today.

It's called The Current Tax Payment Act of 1943, which made it mandatory for employers to withhold federal income taxes from employee's paychecks. It shifted the law from having to pay income tax in one lump sum, to paying as you go. Essentially turning employers into tax collectors.

This was a giant leap towards collecting revenues for the US government to pay for war efforts, but it was also a giant burden placed on employers.

From that day on, employers shoulder the administrative costs and complexities that have eventually funded Social Security, Medicare, Unemployment, US, state, and local government.

It also created a new industry (Payroll). For example, ADP, initially named as Automatic Payrolls, Inc. was established in 1949 only 6 years later.

This is why employers use payroll providers.

But, as I have mentioned before, Delegating Payroll is a Choice, it's up to you to decide whether to take on the challenge yourself.

How to Switch Payroll Providers

Last week I wrote about Why People Change Payroll Providers.

To save you the time, here are three common reasons folks switch:

• Your current provider keeps raising rates, or keeps charging for extras

• You are not happy with their support, and/or do not have a dedicated payroll rep who knows you or your company

• The software is outdated, or does not include features you need

So if you are looking for better service, better price, or both, it makes sense to shop around as Mom always told you.

When it comes down to it, there are hundreds of companies that can handle your payroll, it's really a matter of finding a company with great service who will not raise your price, and who provides modern software to keep you compliant.

Along with that, no matter what your accountant might tell you, you don't need to use a "big" payroll provider, thankfully those days are gone. Personally I find all those top 10 payroll provider lists to be hilarious... But I'll try to stay focused here :)

So how do you switch? Here are the three basic steps:

• Onboard your company with your EIN and state tax ID
• Onboard your employees with completed W-2s and bank deposit info
• Implement the switch by providing any historical payroll data since Jan 1st.

If you know anything about payroll, you can't just quit one payroll provider, and start a new provider the next day. Instead, the goal is to transition smoothly from your previous provider to make sure employees are paid correctly moving forward.

But it doesn't take long, even using a weekly pay period, you should have time to transition before your next payroll run.

Transition is not hard either, your new payroll provider should be doing the hard work of implementation, not you. Some may charge you for that, some may not.

Then after onboarding and implementation is done, you can start running payroll. Yay!

How HR Uses AI in 2025

Whether you love, hate, or could care less about AI, the hype continues in HR.

In a recent study, the SHRM published 2025 Talent Trends - AI in HR

In the lead paragraph they mention that publicly traded companies lead the way on AI adoption at 58%, followed by private companies at 45%.

"Since publicly traded organizations are held to defined profit-margin and revenue targets, their higher AI adoption suggests they see HR automation and innovation as critical enablers for meeting financial goals."

Does this mean that publicly traded companies are smarter than everybody else? And should we follow the advice of the SHRM in adopting AI to "help align people's strategies with broader organizational objectives, driving efficiency and competitive advantage"?

Maybe?

What I find more valuable however is how HR is using AI:

• 66% To generate job descriptions
• 44% To review or screen applicant resumes
• 32% To automate candidate searches
• 31% To customize or target job postings to specific groups
• 29% To communicate with applicants during the interview process

Those are definitely interesting ways of filling jobs at your company, all that work can be done in minutes... I'm guessing.

But why stop there? Why not let AI decide who gets the job, it's way too hard to do this yourself. Unless of course you are hiring a relative, for that you would probably unplug the machine for a minute.

Sorry, I digress.

Anyhow, the study goes on to say using AI "can allow HR to focus more of their attention on high-value tasks that matter most." Which I hope is true.

But for the record, there is probably a reason why 42% of publicly traded companies have not adopted AI yet.

Maybe like me, they find the whole thing hilarious.

Is Cold Email Spam?

As business owners we are all trying to get the word out.

One technique is to send "cold emails" to a list of prospects you think might be interested.

But is it spam?

Here is what Google says... "No, cold email is not inherently spam; the key differences lie in intent, personalization, and value."

Which is fine, but what exactly does that mean? Every cold email from a marketer has the "intent" to sell you something. So if it says Hey Bob, why does that make it okay?

And further, why are some emails considered spam, while others not?

And why are some emails flagged as spam and placed in spam folders despite being a simple outreach?

As a marketer, you may have a legitimate reason to send cold email, for example, you met someone at a trade show, looked up their email, then reached out to them to promote your product or service. There is nothing wrong with that.

Same thing with cold calling or door-to-door sales, other than being annoying there is no law against it.

Generally speaking, those who are successful at cold email first follow the CAN-SPAM Act, and provide legitimate products and services.

However, two things always break the camel's back.

Volume and frequency.

The more emails you send (i.e. bulk emails) the more your email address is scrutinized. Some folks warn not to send more than 50 cold emails per day, others warn not to send more than 2 cold emails per email address, some warn you should use an SMTP service.

Why the fuss? To avoid spam filters. The game is to keep emails in the inbox, not the spam box.

Sending cold emails is still a cheap way to get the word out. If you do, it is recommended to follow the rules:

• Don’t use false or misleading header information
• Don’t use deceptive subject lines
• Identify the message as an ad
• Tell recipients where you’re located
• Tell recipients how to opt out of receiving future marketing email from you
• Remember that subscribers and members can opt out of marketing emails, too
• Honor opt-out requests promptly
• Monitor what others are doing on your behalf

As Google mentioned, cold email is not spam inherently, it becomes spam after you push the volume too much and too fast.

Take it Easy On Employers

Just ran across an article claiming how employers rip off their employees.

Working For Free: 6 Ways Employers Get You To Work For Free (Legally)

I don't know about you, but I don't work for anyone for free unless they are family, a close friend, or someone needing a helping hand... Or maybe because I lost my mind completely... which is always possible.

Anyhow, here is what this author is saying, along with my annotations:

1. Unpaid Overtime Expectations - "Legal ways employers get away with this include misclassifying employees, excluding overtime hours, requiring workers to do additional work while not working on the clock, using round-down time clocks, and denying overtime pay based on the employee’s title."

Legal ways? As a quick reminder, excluding overtime, using unfair time clock rounding, working off the clock, and denying overtime to hourly workers who work over 40 hours, is not legal... Not even close. Most employers already know that.

2. Voluntary Training Programs - "Time spent on such activities outside of work hours essentially becomes free labor".

Learning is free labor? What if a company paid toward a college education? Or skills you could use to find another job? Employers offer training to improve the skills of their own workforce. I'm not seeing a problem here, and find the assertion generally unfair.

3. Misclassification Of Employees - "Employers sometimes misclassify employees as independent contractors to bypass certain pay regulations like overtime pay, minimum wage".

I can't say this does not happen, as classification can be ambiguous. Keep in mind most employers understand if they misclassify, they risk hot water with the IRS. Which everyone knows is not good.

4. Required Prep Or Cleanup Time - "This time often goes unpaid because employers claim it’s part of the job and not actual work hours."

Not actual work hours? Employers are required to pay hourly workers for every minute on the clock, and prep/cleanup time is on the clock. Employers already know this very well, but if they don't, maybe talk to an attorney.

5. Optional After-Hours Events - "Events might be off the clock but come with heavy peer pressure to attend".

Free food is work? Company culture sometimes tries to unite employees after hours, but employers already know it should never be required. If they do either make a claim, or find a better fit somewhere else.

6. Expectation Of On-Call Availability - "Many employees, especially in tech or healthcare, are expected to remain on-call without compensation."

Without compensation? I'm no attorney, so I searched for one... According to the Law Offices of Frank S Clowney III... "An on-call employee is legally entitled to pay if they are engaged to work and their time is subject to their employer’s control. An employer is not required to pay an employee their standard rate for on-call compensation, but the pay can’t be less than the minimum wage."

Conclusion

Most employers are hard working folks trying to keep you (and themselves) employed. Does that mean all are perfect, no.

But it is far more helpful to label them as people who offer jobs, not as people taking unfair advantage of their employees. It's simple, if you think something ain't right, ditch the complaints and do something positive about it.

Take it easy on employers, they keep you employed and help run the economy.