How to calculate employee checks in 2026

Ensuring your employees are paid accurately and on time is one of the most important tasks when running a small business. However, calculating employee wages for the first time can be confusing.There are many factors that affect your employee’s final take-home pay and plenty of legal regulations to keep up with. In this post, we’ll walk you through how to calculate an employee’s paycheck from start to finish.

Read the post in full or navigate to your preferred section using the links below:

• How to calculate an employee's paycheck
• The employee paycheck formula
• What employers need to manually calculate a paycheck
• Step-by-step guide: How to calculate an employee’s paycheck
• Methods to process payroll
• Checklist for avoiding issues when manually calculating paychecks
• Streamlining your paycheck process: The benefits of using payroll software
• Take control of your payroll

How to calculate an employee’s paycheck

Employers can calculate paychecks manually, use payroll software, or outsource the job to a service provider. Below, we’ll walk through how to calculate a paycheck step by step so you understand what goes into the manual process.

Manually calculating your employee’s take-home pay requires careful organization and attention to detail. While there are several factors to consider, you can start with a basic paycheck formula as your guide.

Pro Tip: Check out our Paycheck Calculator to calculate estimated pay and withholdings within seconds.

The employee paycheck formula

Every paycheck comes down to one core equation. Once you understand how the pieces fit together, the process becomes easier to manage:

Net pay = Gross pay – Pre-taxes – Employee taxes – Post-tax deductions + Reimbursements

In the steps below, we break down each component.

What employers need to calculate a paycheck manually

To calculate employee paychecks, you’ll need an array of information, including:

• Employee salary or hourly rate
• Federal, state, and local tax rates
• Retirement contributions information
• Employee deduction information
• Employee reimbursement information

We’ll go over how this information comes into play as you compute an employee’s paycheck in our step-by-step guide below.

Step-by-step guide: How to calculate an employee’s paycheck

There are six key steps to manually determining your employee’s take-home pay, beginning with examining their gross earnings.

Step 1: Calculate your employee’s gross pay

Typically, an employee's paycheck begins with their gross wages: the total amount of money the employee has earned during the specified pay period.

To determine gross pay, you must consider their employment type: salaried or hourly.

Gross pay for salaried employees: When calculating a salaried employee’s paycheck, gross earnings are their annual salary divided by the number of pay periods in the year. If your salaried employee makes $60,000 per year, and you pay your employees twice per month, their gross pay for a given pay period would look as follows:

Gross wages (salaried employee): Annual salary ÷ pay periods

$2,500 = $60,000 ÷ 24

Gross pay for hourly employees: When calculating an hourly employee’s paycheck, gross wages refers to the number of hours they worked multiplied by their hourly pay rate. If your hourly employee makes $16 per hour, and they worked 32 hours in the specified pay period, their gross pay for the given pay period would look as follows:

Gross wages (hourly employee): Hours worked within pay period x Hourly rate

$512 = 32 x $16

When determining gross wages, employers must also consider tips, commission, and overtime. Overtime can complicate the process of calculating an employee’s paycheck.

If your hourly employees work over 40 hours in a week, you are required to pay overtime. Most salaried employees are exempt from overtime, but this is dependent on pay level.

Employers may elect to pay more than the federally required overtime rate, and some states actually have additional overtime laws requiring overtime to be paid at a higher rate than required on the federal level.

Let’s take our hourly example from above.

If your employee earns $16 an hour and works 45 hours in a single week, they are entitled to receive overtime pay for 5 hours at 1.5 times their hourly rate. The gross pay formula would be as follows:

Gross pay per week (hourly employee with overtime):

(Regular hours × Hourly rate) + (Overtime hours × Hourly rate × 1.5)

760 dollars = (40 × $16) + (5 × $16 × 1.5)

What’s the difference between tax deductions and withholdings?

Although both reduce an employee’s take-home pay, they are not the same thing.

Tax withholdings are mandatory amounts sent directly to the government, such as federal income tax and FICA taxes. These are advance payments of the employee’s annual tax liability.

Payroll deductions are other amounts taken from gross pay. These may include benefit premiums, retirement contributions, or court-ordered garnishments. Some deductions are taken before taxes are calculated (pre-tax), while others are taken after taxes.

What are common pre-tax withholdings?

Certain benefit elections are structured to be taken out before income taxes are applied. These are often chosen during onboarding or open enrollment.

Common pre-tax deductions include:

• Health insurance premiums: Medical, dental, and vision coverage
• Retirement contributions: 401(k) or traditional IRA contributions
• Health Savings Account (HSA) contributions: Savings for qualified medical expenses
• Flexible Spending Account (FSA) contributions: Funds set aside for healthcare or dependent care costs
• Commuter benefits: Eligible transit or parking expenses

If an employee’s benefits are paid with pre-tax deductions, they cannot claim those deductions on their income tax return.

Step 3: Deduct employee taxes

In this step, you’ll calculate and withhold the required taxes from your employee’s taxable wages. These amounts reduce the employee’s take-home pay and must be remitted to the appropriate tax agencies.

Employee withholdings vs employer payroll taxes

It’s important to distinguish between the taxes your employees pay and the taxes you pay as an employer.

Employee-paid taxes (withheld from pay)

Employee withholdings are taxes deducted from employee paychecks. Your responsibility is to withhold the correct amount and remit it to the IRS on behalf of your employee. These include:

• Federal income tax: Determined by the employee's taxable gross wages, filing status, and the information they provide on their Form W-4. You can use IRS Publication 15 (Circular E) to determine the required federal withholding amount.
• State and local income tax: Most states have income tax, though rates vary significantly. Some cities also require local income tax withholding. Be sure to check the tax requirements for where your business operates and where your employees live, especially if you have remote workers. If your state requires employees to contribute to State Disability Insurance (SDI), you'll need to withhold that amount as well.
• Social Security and Medicare taxes (FICA): Employees pay a 6.2% Social Security tax on wages up to $184,500 in 2026 and a 1.45% Medicare tax on all wages, plus an additional 0.9% Medicare tax for high earners.

Employer-paid taxes (do not reduce net pay)

While these taxes do not come out of the employee’s paycheck, you are required to calculate and pay them as part of your total payroll expense:

• Employer share of FICA: You match your employee’s 6.2% Social Security and 1.45% Medicare contributions.
• Federal Unemployment Tax (FUTA): Paid entirely by the employer. The 2026 rate is 6.0% on the first $7,000 of wages, though most employers qualify for a credit that lowers the effective rate to 0.6%.
• State Unemployment Tax (SUTA): Rates vary by state and employer history.
• Local employer payroll taxes (if applicable): Some cities or municipalities require additional employer-paid payroll taxes or business payroll expense taxes.

Step 4: Take out voluntary and involuntary deductions

You may also need to withhold voluntary and involuntary deductions. 

Examples of involuntary (mandatory) deductions:

• Court-ordered child support payments: If your employee is required to contribute a certain amount of their paycheck to child support payments, you may need to withhold these funds.
• Wage garnishments: If your employee is required by court order to pay off tax debt, it is your responsibility to withhold the appropriate amount.

Voluntary deductions require written employee authorization before the deduction can be taken. Examples of voluntary deductions:

• Uniform or tool expenses
• Tuition or certification expenses
• Health insurance premiums for a medical, vision, or dental plan

Step 5: Add reimbursements

You may need to add money to your employee’s paycheck if they qualify for reimbursement. If one of your employees has incurred a qualified, work-related expense, you may need to pay them back.

Examples of employee reimbursements may include:

• Mileage reimbursements: If your employee had to drive to a client meeting, you may reimburse them for the money spent on gas.

Food reimbursements: If a manager on your team buys meals for their direct reports, you may pay them back for that cost.

Step 6: Calculate net pay

After subtracting pre-tax deductions, employee taxes, and post-tax deductions — and adding any reimbursements — the remaining amount is your employee’s net pay.

This is the amount your employee receives via direct deposit or paycheck for the pay period.

Methods to process payroll

Once you understand how to calculate paychecks, you need to decide how you'll process payroll. There are three primary methods:

Manual payroll processing

Manual payroll processing involves calculating paychecks, withholding taxes, and remitting payments to tax authorities yourself. It works for very small businesses but becomes time-consuming as your team grows.

Payroll software

Payroll software, such as QuickBooks, automates paycheck calculations, tax withholdings, and filings. You gain control and transparency, while saving time and reducing errors.

Outsourcing to a payroll service provider

When you outsource, a third-party provider handles all aspects of payroll, from calculations to tax filings. This is the most hands-off option but can be more expensive.

Checklist for avoiding issues when manually calculating paychecks

Use this checklist to help ensure accurate and compliant payroll, minimizing errors and saving valuable time for your business:

• Organize and verify all employee information before processing payroll.
• Review and confirm the correct federal, state, and local tax rates for your business and employees.
• Double-check your calculations for FICA and other payroll taxes.
• Confirm all employee deductions are correct and accounted for.
• Ensure that reimbursements are included where appropriate.
• Stay current with changing tax laws and regulations affecting payroll.
• Carefully review overtime calculations for accuracy.
• Verify that each employee is properly classified regarding overtime eligibility.

There’s a lot to keep track of, and small mistakes made when calculating your employee’s paychecks can have lasting consequences. Employee retention rates may suffer if your team isn’t paid on time or paid accurately, and legal consequences can result from miscalculated payroll taxes.

Streamlining your paycheck process: The benefits of using payroll software

Manual paycheck calculation may be sufficient early on. But as your business grows and you hire more employees, the process can quickly become time-consuming, detail-heavy, and harder to manage without dedicated systems in place. Payroll software can help ease the burden. Here are a few benefits:

• Improved organization: Payroll software compiles all necessary employee data into a single, centralized location so you have everything you need in one place.
• Automated payroll processing: It automates running payroll and sending out checks every pay period. Once set up, you can relax knowing your team is getting paid on time, every time.
• Compliance peace of mind: It helps you stay aligned with payroll laws and regulations, so you can focus on growing your business.
• Paycheck flexibility: Print checks or use direct deposit, giving you and your employees improved flexibility.
• Customer support: Depending on the plan, you may have access to experts who can help you navigate payroll questions as they arise.
• Tax penalty protection: Payroll software often includes tax-penalty protection, giving you confidence that your payroll is done correctly.
• Save time: Automating your payroll processes frees you up to focus on building your business.

Take control of your payroll

Running payroll involves a lot of moving parts, but with the right systems in place, it becomes far more manageable. A well-structured process helps you pay your team correctly, stay compliant, and avoid unnecessary stress.

If you're looking for a more efficient approach, explore QuickBooks. It helps automate calculations, handle filings, and keep everything organized—so you can spend less time on paperwork and more time leading and growing your business.