How to Run Payroll for a Small Business in Houston: The Pay-Period Process

A Heights barbershop hired its first two employees in March. The owner knew she had to “do payroll” but wasn’t sure what that meant beyond cutting checks. She’d set up QuickBooks Payroll, entered the employees, and assumed it would handle itself.

By April 15 she had a notice from the IRS. She’d been creating pay stubs in QuickBooks but never actually pushing the tax deposits through EFTPS. The pay stubs went out. The federal taxes sat idle. The IRS noticed before she did.

Running payroll for a small business in Houston means more than generating a pay stub. Every pay period has a sequence of steps, and skipping any one of them creates either a problem with your employees or a problem with the IRS.

Here’s the full cycle.

Before the First Payroll Run: What Has to Be in Place

Before you can run a single payroll, you need four things confirmed:

An EIN from the IRS. This is your employer identification number. You apply at irs.gov and receive it immediately online. Every tax form you file as an employer references this number.

EFTPS enrollment. The Electronic Federal Tax Payment System is how you make payroll tax deposits. Enrollment takes 7 to 10 business days because the IRS mails your PIN. Do this before your first pay date.

A TWC account. Texas employers register with the Texas Workforce Commission to handle unemployment insurance. You set this up at twc.texas.gov after you hire your first employee.

Each employee’s W-4 and I-9. The W-4 tells you how much federal income tax to withhold. The I-9 verifies work authorization. You need both on file before anyone works their first day.

If any of these pieces are missing, your first payroll run will create tax obligations you can’t fulfill on time. Getting set up right is covered in detail in our guide to setting up payroll for the first time.

Step 1: Collect and Approve Hours

At the start of every pay period, you need final, approved hours from every hourly employee. “Final” matters here. If an employee adds hours after you’ve run payroll, you have two options: cut a manual correction or process it next period. Both create headaches.

Most small businesses in Houston use one of three methods:

• A time-tracking app (Clockify, Homebase, TSheets) that exports hours to a spreadsheet
• A physical time clock with punch cards
• Manager approval of handwritten or submitted hours

For salaried employees, there are no hours to collect. Their gross pay is fixed for the period. But you still need to know if any employee took unpaid time off, received a bonus, or had any other pay change that affects their check.

Step 2: Calculate Gross Pay and Deductions

Gross pay is the starting number. For hourly employees: hours worked times hourly rate, plus overtime at 1.5x for any hours above 40 in the workweek. For salaried employees: their annual salary divided by the number of pay periods per year.

From gross pay you subtract:

Federal income tax withholding. Based on each employee’s W-4. The amount varies by filing status and claimed dependents. Payroll software calculates this automatically using IRS Publication 15 tables.

Employee FICA. 6.2% for Social Security (up to the $176,100 wage base in 2026) and 1.45% for Medicare. These come out of the employee’s check.

Any voluntary deductions. Health insurance premiums, 401(k) contributions, garnishments, or other agreed-upon deductions.

What’s left after all deductions is net pay: the amount that hits the employee’s bank account.

Step 3: Fund and Run Direct Deposit

Direct deposit is standard for most Houston businesses now. You submit the payroll file to your bank or payroll service two business days before the actual pay date. The bank processes the ACH transfer and funds arrive in employee accounts on pay day.

If you’re running payroll yourself through QuickBooks Payroll or Gusto, the software handles the direct deposit submission. You approve the payroll, the software pulls the funds from your business account, and employees get paid.

Paper checks are still legal but create administrative work: printing, signing, distributing, and dealing with lost checks. Direct deposit removes all of that.

Step 4: Make the Federal Tax Deposit

This is the step the Heights barbershop owner missed. After payroll runs, you owe the IRS the taxes that were withheld from employees plus your employer-side match.

What you owe per pay period:

• Employee federal income tax withheld
• Employee FICA (6.2% Social Security + 1.45% Medicare per employee)
• Employer FICA match (6.2% + 1.45% for every employee)

Most small businesses are monthly depositors, meaning deposits for January are due by February 15, deposits for February are due by March 15, and so on. If your total payroll tax liability was over $50,000 in the prior lookback period, you’re a semi-weekly depositor and deposits are due within a few days of each pay run.

Deposits go through EFTPS. Log in, select the 941 payment type, enter the amount, and confirm. The IRS receives confirmation within 24 hours.

Penalties for late deposits start at 2% for one to five days late and climb to 15% if still unpaid after the IRS sends a notice. On a $5,000 monthly deposit, a 15% penalty is $750 just for being late.

Step 5: File Form 941 Each Quarter

Form 941 is the quarterly payroll tax return. It summarizes everything that happened over the quarter: total wages paid, taxes withheld, deposits made, and any adjustments.

Due dates:

• Q1 (Jan-Mar): April 30
• Q2 (Apr-Jun): July 31
• Q3 (Jul-Sep): October 31
• Q4 (Oct-Dec): January 31

Form 941 is where the IRS reconciles your individual deposits against your total tax liability. If you made all your deposits on time and for the correct amounts, the form just confirms that. If there’s a discrepancy, the IRS will contact you.

For a complete breakdown of Texas-specific payroll taxes including TWC rates, see our Texas payroll compliance guide.

Step 6: File the TWC Quarterly Wage Report

Texas employers file a separate quarterly wage report with the Texas Workforce Commission. This report lists every employee’s wages paid during the quarter and is used to calculate your unemployment insurance obligation.

TWC quarterly deadlines run one month after quarter-end:

• Q1: April 30
• Q2: July 31
• Q3: October 31
• Q4: January 31

The TWC late filing penalty is $25 per day. A report filed two weeks late costs $350. A report filed a month late costs over $750. These amounts apply separately from any IRS penalties.

TWC also requires you to report new hires to the Texas Attorney General’s office within 20 days of their start date. This is a separate requirement from the quarterly wage report.

Step 7: Reconcile Payroll Against Your Books

At the end of each month, payroll data needs to match your general ledger. Wages paid, taxes withheld, employer taxes, and benefit deductions should all tie to specific accounts.

If you’re using QuickBooks, payroll entries can post automatically. If you’re working with a bookkeeper, they’ll pull the payroll summary report and make the journal entries. Either way, the goal is that your books reflect every dollar paid and every dollar owed.

A construction company in Pearland came to us with a bookkeeping mess: they’d run payroll correctly but never posted the employer tax expense to the books. Their profit looked higher than it was because a real expense wasn’t recorded. Tax time created a surprise.

When to Call a Houston Payroll Service

For one or two employees on a simple salary, running payroll yourself is manageable if you stay disciplined about the EFTPS deadline.

Once you have three or more employees, varying pay rates, hourly staff with overtime, or contractors mixed with employees, the error rate goes up. A single miscalculation on overtime spreads across every affected period. A missed deposit compounds with penalties.

Houston payroll services from EZQ Group handle every step in this cycle. You approve hours, we handle everything else. Pricing starts at $75/month for up to three employees, with a flat rate per employee count, not per run.

Call us at (346) 389-5215 or get a free payroll quote to see what your monthly cost would be.

The IRS doesn’t send warnings before penalties. The penalty arrives with the notice. Getting the process right before that happens is worth the call.