In this article, I’ll explain how long it takes to process payroll, including the time ranges for each stage of the process. I’ll also explain how business size affects processing time, and what other factors can affect how long it takes to pay your employees.
Payroll processing involves three sequential stages:
Collecting timesheets (and any other data needed to calculate wages). This is usually done through a time tracking system that automatically records employee hours and calculates gross pay. For some businesses, this might involve manually collecting timesheets from employees and entering them into a spreadsheet or software program.
Running payroll calculations. This is where you actually calculate what everyone gets paid — their gross wages, their deductions, and their net pay. You need to make sure you’re following all applicable laws and regulations, and that your employees are getting paid correctly.
Direct deposit settlement. After you’ve calculated everyone’s pay, you need to send the money out. This involves transferring funds from your company’s bank account to your employees’ accounts, which typically takes 1–4 days.
These steps are generally sequential, meaning that you can’t run payroll calculations until you have all the necessary data, and you can’t send out direct deposits until you’ve run the payroll calculations. The total amount of time it takes to complete all three steps depends on a number of factors, including your business size and whether you automate the process.
Business size and automation
Small businesses tend to take less time to process payroll than larger companies. If you’re using automated payroll software, you’ll likely be able to finish processing in just a few hours per pay period. But if you’re running payroll manually, it could take several days. And if you’re not automating anything at all, it could take even longer.
The average savings associated with automation was 2.56 hours per pay period, or about 3.93 hours per week. Automating payroll calculations can save a lot of time compared to doing it manually.
Integrating your time and attendance system with your payroll software reduces lag, as well. When these two systems work together seamlessly, it eliminates the need to manually input employee hours, ensuring accurate and timely payroll processing.
Other factors that affect payroll timing
There are other factors that can affect how long it takes to process payroll, beyond your business size and whether you automate the process. One of these factors is how often you run payroll. Some companies choose to run payroll weekly, while others prefer biweekly or semimonthly pay periods. Monthly pay periods are also common, though they tend to be more expensive and complex to manage.
Another factor that can affect processing time is variable compensation. Sales commissions, bonuses, and other forms of variable pay must be calculated correctly and reflected in your employees’ paychecks. This requires additional time and effort compared to fixed salary payments.
Finally, the payment method you choose will also impact how long it takes to process payroll. Direct deposit is typically the fastest option, but it may not be suitable for all businesses. Paper checks and ACH transfers can take longer to process, and may require additional documentation and verification steps.
Initial setup and outside providers
Initial payroll setup is a separate one-time task that has its own distinct timeline. Basic payroll setup typically takes between 1 and 3 days, depending on the complexity of your organization’s payroll needs. This includes gathering all the necessary documents and information, setting up payroll software or services, and configuring payroll settings.
If you’re hiring an external payroll service provider, they’ll help reduce both the processing time and the compliance risk involved in managing payroll. These providers have access to the latest payroll software and know the latest legal changes affecting payroll. They can adapt their processes quickly to accommodate new requirements, and they’ll ensure that your payroll remains compliant throughout the year.