How to Run Payroll in LivyPayroll: A Step-by-Step Walkthrough

LivyPayroll is designed to get you from setup to your first pay run in under an hour. This guide walks through every step: company setup, adding employees (including the settings most people miss), and running payroll each pay period. Once you've done it once, subsequent runs take under five minutes.

Step 1: Company setup

Before you can run payroll, LivyPayroll needs to know a few things about your business. In the Company Settings section, you'll enter:

• Legal business name: used on pay stubs and W-2 forms
• Employer Identification Number (EIN): your federal EIN, required for W-2 filing
• State of employment: determines which state tax tables are applied
• Pay frequency: weekly, biweekly, semi-monthly, or monthly. This affects how tax withholding is calculated, since federal and state formulas are frequency-dependent
• Tax deposit schedule: monthly or semiweekly, based on your IRS-assigned schedule. This sets the due dates shown on your tax liabilities summary

If you manage multiple companies, each gets its own company profile under the same LivyPayroll account. You switch between them from the top of the dashboard. You only pay for active employees across your companies, not per company.

Step 2: Adding employees

Go to the Employees section and click Add Employee. You'll work through a short setup form covering the basics, pay type, vacation settings, and W-4 options. Take your time on this step: most of these settings carry forward to every future pay run, so getting them right upfront saves a lot of adjustments later.

Basic employee information

• Legal name: as it appears on their Social Security card, used on pay stubs and W-2s
• Social Security Number (SSN): required for W-2 generation
• Date of birth: kept on file as part of the employee record
• Email address: used to deliver pay stubs electronically
• State of employment: can differ from your company's state if an employee works remotely from another state

Pay type

LivyPayroll supports three pay types:

• Hourly: you enter hours each pay run. LivyPayroll calculates gross pay based on hours worked at the set hourly rate
• Salary: a fixed annual salary is divided by the number of pay periods in the year. No hours entry required each run
• Piecework: you enter the number of units completed and the rate per unit. LivyPayroll calculates gross pay accordingly, and this pay type is one of LivyPayroll's standout features for trades, agriculture, and manufacturing businesses

Step 3: Vacation pay settings

This is one of the most important and most commonly overlooked settings. LivyPayroll supports two methods of handling vacation pay, and you choose per employee based on your arrangement with them.

Option 1: Vacation pay paid out each period

With this option, vacation pay is calculated as a percentage of the employee's gross wages each pay period and added directly to their pay. The employee receives their vacation pay continuously rather than as a lump sum when they take time off.

This is the most common approach for hourly employees, especially in industries with irregular hours. Vacation and PTO policy varies by state and by employer, so the applicable percentage depends on your own policy.

In LivyPayroll, select "Pay each period" and enter the applicable percentage. The vacation amount is automatically calculated and added to gross pay on every run, and is shown as a separate line on the pay stub.

Option 2: Vacation pay accrued

With the accrual method, vacation pay accumulates in a running balance as a percentage of earnings but is not paid out until the employee takes a vacation. The accrued amount is tracked in LivyPayroll and you pay it out as a separate line item when the employee actually takes time off.

This method is more common for salaried employees and is useful when employees bank vacation time and take it as actual days off rather than receiving a small top-up each pay period.

In LivyPayroll, select "Accrue" and enter the percentage. The balance builds up in the employee profile, and you manually trigger the payout when the employee takes their vacation.

Step 4: W-4 and tax withholding

Form W-4 is what employees use to tell you how much federal income tax to withhold from their pay. Getting this right is important. Under-withholding means the employee owes tax at filing; over-withholding means they get a refund but had less take-home pay than they should have.

How W-4 works in LivyPayroll

W-4 information is entered on the employee's first pay stub, not during employee setup. When you run payroll for a new employee for the first time, LivyPayroll will prompt you to enter their W-4 filing status and any adjustments before generating the stub. Most employees simply select their filing status (single, married filing jointly, or head of household) with no additional adjustments.

If an employee has multiple jobs, dependents to claim, or other adjustments (extra withholding, deductions), those are entered as additional W-4 fields. Employees with more dependents or adjustments generally have less withheld from each paycheck.

LivyPayroll uses the W-4 information along with current federal withholding tables to calculate the employee's tax withholding automatically on every run.

Federal and state withholding

Most employees also complete a state withholding form (where the state requires one). Both federal and state withholding settings are entered in LivyPayroll and applied automatically based on the employee's state of employment.

W-4 carries forward automatically

Once you've set a new employee's W-4 on their first pay run, it carries over to every subsequent pay run automatically. You only need to update it if the employee submits a new W-4: for example, after a life change like a new dependent or a change in filing status. Employees are responsible for notifying you when their W-4 changes.

What if an employee doesn't give you a W-4?

If an employee does not give you a completed W-4, IRS guidance says to withhold tax as if they are single with no adjustments. Enter that filing status and LivyPayroll will handle the rest.

Step 5: Running payroll

Once your company is configured and employees are set up, running payroll is the fast part. From the dashboard, click Run Payroll and select the pay period.

For hourly and piecework employees

Enter the hours worked (or units completed) for each employee in the current pay period. LivyPayroll calculates gross pay based on the rate you set during employee setup. You can adjust hours for individual employees without affecting their saved rate.

For salaried employees

No hours entry is needed. LivyPayroll automatically uses the salary amount divided by the number of pay periods for the year. The pay run screen shows each salaried employee with their pre-calculated gross pay for the period.

Reviewing deductions

Before confirming the run, LivyPayroll shows you a summary of all calculated withholding for every employee:

• Federal income tax (based on W-4 and pay frequency)
• State income tax (based on state of employment and state withholding form, where applicable)
• Social Security tax (employee share: 6.2% of wages, up to the annual wage base)
• Medicare tax (employee share: 1.45% of wages, with an additional amount above a threshold for higher earners)
• Vacation pay (added to gross if set to pay each period)

Review the withholding for accuracy. If something looks wrong, you can adjust hours or rates before confirming. Once you click Confirm Payroll, the run is finalized and pay stubs are generated.

Payroll adjustments

If you need to add a one-time amount (a bonus, commission, retroactive pay, or a specific deduction), you can add a payroll adjustment on the run screen before confirming. Adjustments are applied to that pay period only and do not change the employee's base settings.

Step 6: Pay stubs and delivery

Once payroll is confirmed, LivyPayroll generates a professional pay stub for every employee in the run. Each stub shows:

• Gross pay for the period
• All withholding itemized (federal tax, state tax, Social Security, Medicare, vacation pay if applicable)
• Net pay
• Year-to-date totals for gross pay and all withholding
• Pay period and check date
• Employee and employer information

Delivering pay stubs

You have three options for getting pay stubs to employees:

• Email: LivyPayroll sends the pay stub directly to the employee's email address as a PDF attachment. You can trigger this immediately when payroll is confirmed, or schedule it to go out on pay day
• Download PDF: download individual or bulk PDFs from the pay run screen to print or share however you prefer
• Scheduled delivery: set pay stubs to go out automatically on a specific date. Useful if you run payroll a few days early but don't want employees to receive their stub before pay day

Step 7: Tax liabilities summary

After each payroll run, LivyPayroll generates a tax liabilities summary showing exactly what you need to deposit with the IRS and your state.

The summary shows:

• Total federal and state income tax withheld from all employees
• Total employee Social Security and Medicare tax
• Total employer Social Security and Medicare tax (your matching share)
• Grand total due
• Due date based on your deposit schedule

You submit federal deposits yourself through the Electronic Federal Tax Payment System (EFTPS) and state deposits through your state's revenue agency. LivyPayroll does not remit on your behalf: the summary gives you the exact amounts so there's no calculation needed on your end.

The tax liabilities summary is available as a PDF from the Reports section at any time.

Step 8: Year-end W-2s

If you've run all your payroll through LivyPayroll during the year, your W-2s are essentially already built. At year-end, navigate to Reports > W-2 and LivyPayroll compiles the full calendar year of pay data into completed W-2 forms for every employee.

Key boxes are automatically populated:

• Box 1: total taxable wages
• Box 2: federal income tax withheld
• Box 3: Social Security wages
• Box 4: Social Security tax withheld
• Box 5: Medicare wages
• Box 6: Medicare tax withheld
• Boxes 16–17: state wages and state income tax withheld

Review each form, then download individual PDFs to distribute to employees by January 31. LivyPayroll also prepares the accompanying transmittal data from the same pay history.

Tips for a smooth payroll experience

• Run payroll consistently. Use the same pay period dates each cycle. LivyPayroll tracks YTD totals cumulatively, so inconsistent periods can cause issues near the Social Security wage base.
• Confirm hours before running. Once a payroll run is confirmed, pay stubs are generated and sent. There is no "undo." If you need to correct a confirmed run, contact LivyPayroll support.
• Update W-4s when employees notify you. When you receive an updated W-4, update the employee record before the next run.
• Track your tax deposit due dates. Most small businesses deposit monthly (the 15th of the month following the payroll period). Missing a deposit date triggers IRS penalties. Your tax liabilities summary shows the due date clearly.
• Use LivyPayroll's reports throughout the year. Don't wait until January to look at your numbers. The payroll history report in LivyPayroll lets you review gross pay, withholding, and net pay by employee and by period at any time.