Payroll refers both to the total amount a business pays its employees and to the process of calculating and distributing those payments. The process includes computing gross pay (hourly rate × hours worked, or salary ÷ pay periods), withholding federal and state income tax, Social Security (6.2%), and Medicare (1.45%), and remitting those withholdings to the government.
The employer also pays a matching share of Social Security and Medicare (7.65% of gross wages), plus federal and state unemployment taxes (FUTA/SUTA). The total employer cost of an employee is roughly 108–112% of gross wages before benefits.
Payroll errors — missed withholdings, late tax deposits, incorrect W-2s — create penalties from the IRS and state agencies. For this reason, most small businesses use payroll software (Gusto, Square Payroll, QuickBooks Payroll) or a payroll service (ADP, Paychex) rather than processing manually. See Hiring Your First Employees for payroll setup and Small Business Bookkeeping for recording payroll transactions.