How to run payroll in United States

In the United States, most employers pay employees bi-weekly, typically on Fridays. Here's the complete payroll cycle.

Payment frequency and dates

Most US companies run bi-weekly payroll cycles, paying employees every two weeks on the same day (usually Friday). This results in 26 pay periods per year. Some organizations use semi-monthly schedules (24 pay periods), typically paying on the 15th and last day of each month.

Weekly payroll is common in industries like construction, hospitality, and retail. Monthly payroll is less frequent but used by some government entities and nonprofits.

Federal law doesn't mandate specific pay frequencies, but most states require at least monthly payments. Some states have stricter requirements - for example, Connecticut requires weekly pay for certain industries, while California mandates twice-monthly for most employees.

Payment must occur by the established pay date. If the pay date falls on a holiday or weekend, most states require payment on the preceding business day.

13th/14th month payments

The United States doesn't have mandatory 13th or 14th month payments. These additional payments aren't part of standard US compensation practices.

However, many companies provide year-end bonuses that might seem similar. These are typically discretionary and based on company performance, individual performance, or contractual agreements.

Any bonus payments are subject to federal income tax withholding at a flat 22% rate for amounts up to $1 million, plus applicable state taxes and payroll taxes.

Holiday and vacation pay

Vacation pay calculation depends on company policy. Most employers use one of these methods:

• Accrual basis: Employees earn vacation hours each pay period (e.g., 3.33 hours per pay period for 20 annual days)
• Front-loaded: Full vacation allocation available at the start of the year
• Anniversary basis: Vacation resets on the employee's hire date anniversary

When employees take vacation, they're typically paid their regular hourly rate or salary equivalent. Some states like California and Montana require payout of unused vacation upon termination, treating it as earned wages.

Holiday pay isn't federally mandated. Employers choose which holidays to observe and whether to pay premium rates for holiday work.

Payment methods

Direct deposit is the dominant payment method, used by over 90% of US employers. Employees provide bank account details through ACH authorization forms.

Paper checks remain legal but are increasingly rare due to cost and administrative burden. Some states allow employers to require direct deposit if they provide alternatives for employees without bank accounts.

Pay cards (prepaid debit cards) are permitted in most states with employee consent. These help serve unbanked employees but must meet specific state requirements regarding fees and access.

Cash payments are generally prohibited except for very small employers or specific circumstances. Digital payment platforms like Venmo or PayPal aren't typically used for regular payroll due to tax reporting complications.

Payment Method	Usage Rate	Key Requirements
Direct deposit	90%+	ACH authorization, bank verification
Paper checks	8%	Delivered by pay date, proper deductions
Pay cards	2%	Employee consent, fee disclosures

Payslip requirements

Federal law doesn't mandate specific payslip content, but the Fair Labor Standards Act requires employers to maintain detailed payroll records. Most states have specific paystub requirements.

Typical required information:

• Employee name and address
• Pay period dates
• Hours worked (for non-exempt employees)
• Hourly rate and total wages
• All deductions itemized
• Net pay amount
• Year-to-date totals

Electronic delivery is permitted in all states, but employees may have the right to request paper copies. Some states require explicit employee consent for electronic-only delivery.

Language requirements vary by state. California requires paystubs in Spanish if the hiring process was conducted in Spanish. New York City requires translation for employees with limited English proficiency.

Employers must typically provide paystubs by the pay date or within one business day. Electronic systems should ensure employees can easily access and print their paystubs for at least one year.

Think you just withhold federal tax? United States adds state and local taxes that catch many employers off guard.

Most states impose their own income tax on top of federal requirements. Cities like New York, Philadelphia, and San Francisco tack on additional local taxes. You'll need separate registrations for each jurisdiction where your employees work.

What are the 2026 federal tax brackets?

Federal income tax uses seven brackets for 2026, with rates from 10% to 37%.

Annual Income ($) - Single	Annual Income ($) - Married Filing Jointly	Tax Rate
$0 - $14,200	$0 - $28,400	10%
$14,201 - $54,550	$28,401 - $109,100	12%
$54,551 - $116,675	$109,101 - $233,350	22%
$116,676 - $204,750	$233,351 - $409,500	24%
$204,751 - $258,600	$409,501 - $517,200	32%
$258,601 - $647,850	$517,201 - $647,850	35%
$647,851+	$647,851+	37%

The standard deduction for 2026 is $14,200 for single filers and $28,400 for married filing jointly.

How do withholding requirements work?

You're responsible for withholding federal, state, and local income taxes from every paycheck. Employees provide Form W-4 to determine their withholding amount based on filing status and dependents.

Federal deposits are due by the 15th of the following month for most employers. Large employers (over $50,000 in quarterly tax liability) must deposit semi-weekly.

Quarterly filings (Form 941) are due by the last day of the month following each quarter: April 30, July 31, October 31, and January 31.

Annual reconciliation happens with Form W-2 distribution to employees by January 31 and Form W-3 filing with the Social Security Administration by February 28.

What tax registrations do you need?

Federal registration requires an Employer Identification Number (EIN) from the IRS. Apply online at irs.gov - approval is immediate for most applications.

State registration varies by state. Most require separate employer accounts for income tax withholding. Processing takes 1-2 weeks in most states, but California and New York can take up to 4 weeks.

Local registration applies in cities with local income taxes. Philadelphia requires registration within 15 days of hiring your first city resident.

Start registrations 30 days before your first payroll to avoid delays.

How are non-residents taxed?

Non-resident employees pay federal tax on all US-sourced income at the same rates as residents. They can't use the standard deduction and must itemize deductions.

Tax treaties may reduce withholding rates for employees from treaty countries. Common treaty countries include Canada, UK, Germany, and Japan. You'll need Form 8233 from the employee to apply treaty benefits.

State taxation of non-residents varies significantly. Some states don't tax non-residents, while others apply the same rates as residents.

What tax mistakes should you avoid?

Misclassifying remote workers creates the biggest compliance risk. An employee working from Texas while employed by your New York company may trigger Texas tax obligations.

Penalty: $50-$500 per employee for failure to register

Late tax deposits carry steep penalties. Federal deposits late by 1-5 days incur a 2% penalty. Over 15 days late jumps to 10%.

Penalty: 2-15% of unpaid taxes depending on delay

Incorrect W-4 processing happens when employers don't update withholding for employee changes. Review W-4 forms quarterly to catch missed updates.

Penalty: $50 per incorrect W-2 form

Employer contributions in United States add 7.65% to every salary for federal taxes alone. Budget for it.

The federal requirements are just the baseline. You'll pay additional state unemployment taxes, workers' compensation, and potentially state disability insurance depending on your location.

Contribution breakdown

Contribution Type	Employer Rate	Employee Rate	Cap (2026)
Social Security	6.2%	6.2%	$168,600
Medicare	1.45%	1.45%	No cap
Federal Unemployment (FUTA)	6.0%*	0%	$7,000
State Unemployment (SUTA)	0.5%-10%**	0%	Varies
Workers' Compensation	0.5%-3%**	0%	No cap

*Reduced to 0.6% with state unemployment tax credits
**Varies significantly by state and industry

Total employer cost example

For a $60,000 salary in most states:

• Base salary: $60,000
• Social Security: $3,720
• Medicare: $870
• Federal Unemployment: $42
• State Unemployment (avg): $1,200
• Workers' Compensation (avg): $900
• Total employer cost: $66,732
• Cost multiplier: 1.11 (employer pays 11% more than base salary)

High earners cost proportionally less due to Social Security caps. Once an employee earns over $168,600, you stop paying Social Security taxes on additional income.

Contribution caps and ceilings

Social Security taxes cap at $168,600 in 2026. For a $200,000 salary, you'll save $1,947 compared to uncapped contributions.

Medicare has no cap. You'll pay 1.45% on every dollar, plus employees pay an additional 0.9% on income over $200,000 (employee portion only).

FUTA caps at the first $7,000 of each employee's wages. Most employees hit this cap by March, so you'll pay just $42 per employee annually.

Registration requirements

Register with the IRS for an Employer Identification Number (EIN) before your first payroll. You'll receive this immediately online.

State registrations vary but typically include:

• State tax department for unemployment insurance
• Workers' compensation carrier or state fund
• State labor department if required

Complete all registrations within 30 days of hiring your first employee. Some states require registration before hiring.

Payment deadlines

Federal taxes (Social Security and Medicare) are due based on your deposit schedule:

• Monthly depositors: 15th of following month
• Semi-weekly depositors: Wednesday or Friday depending on payday

FUTA taxes are due quarterly by the last day of the month following each quarter.

State deadlines vary. Most require quarterly unemployment tax payments, but some states require monthly payments for larger employers.

Workers' compensation premiums are typically paid annually or in installments, with final reconciliation based on actual payroll.

United States has 11 federal public holidays in 2026. Work on these days? Pay overtime rates or holiday premiums depending on your state and company policy.

Leave and benefits in the US vary dramatically by state and employer. While federal law sets minimums, many states require more generous benefits that directly impact your payroll calculations.

Annual leave

Federal law doesn't require paid vacation time. Zero days. But here's what affects your payroll when you do provide it.

Vacation pay calculation follows your regular pay rate at the time it's taken. If an employee gets a raise, their banked vacation hours get paid at the new rate.

Accrual caps matter for payroll liability. Many companies cap accrual at 1.5-2 times the annual grant to limit balance sheet exposure.

Payout on termination depends on state law. California, Montana, and others require payout of all accrued vacation. That's a final paycheck calculation you can't miss.

Nine states treat vacation as earned wages that must be paid out. Check your state requirements - the penalties for getting this wrong run into thousands per employee.

Sick leave

Eighteen states plus DC mandate paid sick leave in 2026. The requirements vary significantly and create complex payroll calculations.

California: 40 hours minimum, accrued at 1 hour per 30 hours worked. Carryover up to 48 hours annually.

New York: 56 hours for employers with 100+ employees. Unused time carries over with no cap.

Washington: 40 hours minimum, front-loaded or accrued. No carryover limits.

Most state sick leave laws require the same rate of pay as regular wages. Factor this into your labor cost projections.

Parental leave

Federal FMLA provides 12 weeks of unpaid leave for eligible employees. No direct payroll impact unless you provide pay continuation.

State programs are expanding rapidly. Thirteen states plus DC now offer paid family leave through payroll deductions:

California: Up to 8 weeks at 60-70% of wages (max $1,540/week in 2026). Funded through employee payroll deductions of 0.9%.

New York: Up to 12 weeks at 67% of wages (max $1,131/week in 2026). Employee deduction of 0.511% of wages.

Washington: Up to 12 weeks at 90% of wages up to $1,327/week. Split funding: 0.4% total (0.2% employee, 0.2% employer).

These deductions appear on every paycheck and require separate tracking for wage base limits.

Public holidays 2026

Date	Holiday	Notes
January 1	New Year's Day	Wednesday
January 20	Martin Luther King Jr. Day	Third Monday in January
February 17	Presidents' Day	Third Monday in February
May 25	Memorial Day	Last Monday in May
June 19	Juneteenth	Friday
July 4	Independence Day	Saturday - Friday observed
September 7	Labor Day	First Monday in September
October 12	Columbus Day	Second Monday in October
November 11	Veterans Day	Wednesday
November 26	Thanksgiving	Fourth Thursday in November
December 25	Christmas Day	Friday

Federal employees get the day off when holidays fall on weekends. Private employers set their own policies, but many follow the federal schedule for payroll purposes.

Mandatory benefits affecting payroll

Workers' compensation premiums vary by state and industry classification. Budget 0.75-2.5% of payroll for most office workers, higher for manual labor.

State disability insurance creates payroll deductions in five states:

• California: 0.9% on wages up to $153,164
• Hawaii: 0.5% on wages up to $57,012
• New Jersey: 0.14% on wages up to $151,900
• New York: 0.5% on wages up to $142,800
• Rhode Island: 1.1% on wages up to $81,500

Unemployment insurance rates for 2026 range from 0.1% to over 10% depending on your experience rating and state. New employers typically start at 2.5-3.5%.

The complexity comes from managing different rules across states while maintaining consistent policies. Your payroll system needs to handle multiple accrual rates, caps, and payout requirements simultaneously.

Employment contracts in United States must include specific wage information, work schedules, and termination procedures or they're legally invalid. Missing these elements can void your entire employment agreement and expose you to Department of Labor violations.

What monthly filings do you need to submit?

Federal tax deposits

You'll deposit federal income tax, Social Security, and Medicare withholdings based on your deposit schedule. Most employers follow the semi-weekly schedule, depositing by Wednesday for Saturday-Tuesday paydays and by Friday for Wednesday-Friday paydays.

Monthly depositors with less than $50,000 in annual tax liability deposit by the 15th of the following month. Miss these deadlines and penalties start at 2% of the unpaid amount for deposits 1-5 days late, escalating to 15% for deposits over 16 days late.

State and local requirements

Each state sets its own filing schedule. California requires quarterly DE-9 forms by the last day of the month following each quarter. New York mandates quarterly NYS-45 returns within one month of quarter-end.

Local jurisdictions add another layer. New York City requires quarterly filings for its income tax, while Philadelphia demands monthly wage tax returns by the 15th of the following month.

What annual reporting must you complete?

Year-end tax reconciliation

File Form 941 for the fourth quarter by January 31, 2026, reconciling your entire year's federal tax deposits. This form shows total wages paid, taxes withheld, and any adjustments needed.

You'll also file Form 940 (Federal Unemployment Tax) by January 31, 2026, reporting your FUTA liability for the year. The current FUTA rate is 6.0% on the first $7,000 of each employee's wages, reduced by state unemployment tax credits.

Employee tax statements

Issue Form W-2 to all employees by January 31, 2026, showing their annual wages and tax withholdings. File Copy A with the Social Security Administration by the same date.

For contractors paid $600 or more, send Form 1099-NEC by January 31, 2026, and file with the IRS simultaneously.

State annual filings

States require their own year-end reconciliations. California's DE-9C is due January 31, 2026, reconciling state disability insurance and employment training tax. Texas employers file Form C-3 by February 15, 2026, for unemployment insurance.

What employee documentation do you need?

Required contract elements

Every employment agreement must specify the employee's regular hourly rate or annual salary, standard work schedule, overtime calculation method, and notice period for termination. Include your company's legal name, the employee's job title, and start date.

For exempt employees, clearly state their exempt status under the Fair Labor Standards Act and describe their primary duties that qualify for exemption.

Payslip requirements

Federal law doesn't mandate specific payslip elements, but most states do. California requires gross wages, all deductions, net wages, pay period dates, hours worked, and hourly rates for non-exempt employees.

New York adds requirements for employer name and address, employee name and address, rate of pay, and regular hourly rate for overtime calculations.

Record retention periods

Keep payroll records for three years under the Fair Labor Standards Act. This includes time cards, wage rate tables, work schedules, and records of additions to or deductions from wages.

Store tax withholding records for four years after the due date of the return or the date you paid the tax, whichever is later. State requirements may extend these periods.

What are the penalties for non-compliance?

Violation	Penalty
Late federal tax deposit (1-5 days)	2% of unpaid amount
Late federal tax deposit (6-15 days)	5% of unpaid amount
Late federal tax deposit (16+ days)	15% of unpaid amount
Missing W-2 to employee	$310 per form (2026 rate)
Late Form 941 filing	5% per month, maximum 25%
Willful misclassification	$1,100 - $5,500 per violation
Missing overtime payment	2x unpaid amount plus attorney fees

Department of Labor violations

Wage and hour violations carry steep penalties. Willfully paying below minimum wage costs twice the unpaid amount plus liquidated damages. Misclassifying employees as contractors triggers penalties of $1,100 for unintentional violations and $5,500 for willful violations per worker.

The Department of Labor recovered $274 million in back wages for 163,000 workers in fiscal year 2025, averaging $1,681 per affected employee.

Which agencies oversee payroll compliance?

Federal agencies

The Internal Revenue Service handles all federal tax compliance. Access their business portal at eftps.gov for electronic tax deposits and filing. Call the business tax line at 800-829-4933 for assistance.

The Department of Labor enforces wage and hour laws through its Wage and Hour Division. Report violations or get guidance at dol.gov/agencies/whd or call 866-4-USWAGE.

State agencies

Each state operates its own tax department and labor agency. California's Employment Development Department (edd.ca.gov) handles unemployment insurance and disability insurance. The California Labor Commissioner enforces wage and hour laws.

New York splits responsibilities between the Department of Taxation and Finance (tax.ny.gov) for tax compliance and the Department of Labor (labor.ny.gov) for wage and hour enforcement.

2026 brought several major payroll changes to United States. Here's what you need to update.

The federal minimum wage remains at $7.25 per hour, but 23 states implemented increases for 2026. Social Security and Medicare rates stayed stable, but key tax bracket adjustments and new state-level requirements affect most employers.

Federal tax bracket adjustments

Standard deduction increase - Effective January 1, 2026

The IRS increased standard deductions by 3.1% for inflation. Single filers can now deduct $15,000 (up from $14,600), while married filing jointly increased to $30,000 (from $29,200).

Update your payroll system's withholding calculations immediately. Employees will see slightly less federal tax withheld from their paychecks starting with January 2026 pay periods.

State minimum wage increases

23 states raised minimum wages - Effective January 1, 2026

Washington leads at $16.66 per hour (up from $16.28). California reached $16.50 for most employers. Florida increased to $12.50, while Arizona hit $15.35.

Review your payroll for employees in these states. Some cities have higher rates than their state minimums - Seattle's minimum wage is $19.97 for large employers.

New state payroll requirements

Colorado pay transparency expansion - Effective January 1, 2026

Colorado now requires salary ranges on all job postings and annual pay equity audits for companies with 100+ employees. Violations carry fines up to $10,000 per posting.

Illinois paid leave changes - Effective January 1, 2026

Illinois employees now earn one hour of paid sick leave for every 30 hours worked, with a 56-hour annual cap. This applies to all employers regardless of size.

Upcoming changes to watch

Federal overtime rule review - Expected late 2026

The Department of Labor announced plans to review the $58,656 salary threshold for overtime exemptions. Any changes would likely take effect in 2027.

Start documenting current exempt employee duties and salaries now. If the threshold increases, you'll need to either raise salaries or reclassify employees as non-exempt.