How to Set Up Payroll in California (Step-by-Step Guide for Small Businesses)

Setting up payroll in California? It's not as scary as it sounds, even if the acronyms make your head spin (EDD, PIT, SDI, SUI... we know). Whether you're hiring your first employee or finally ditching those paper time cards, getting California payroll right from day one means your team gets paid on time and you don't wake up at 3am wondering if you miscalculated something.

This guide walks you through every step—from registering with the right agencies to understanding California's payroll taxes—in actual English.

California payroll setup checklist (quick start)

Here's what you actually need to get California payroll running:

• Register your business: Get your federal EIN from the IRS, then register as an employer with the California Employment Development Department.
• Set up your tax accounts: Grab your California Employer Payroll Tax Account Number from EDD, then enroll in e-Services for Business so you can handle everything online.
• Stay on top of ongoing stuff: File quarterly wage reports using Form DE 9, withhold the right taxes from paychecks (PIT and SDI), pay your employer share (SUI and ETT), and keep records for at least four years per California recordkeeping requirements.

What it means to set up payroll in California

Setting up payroll in California means making sure you can legally pay your team without the state showing up with questions. You'll withhold taxes from paychecks, chip in your employer share, and report wages to government agencies on their schedule.

California takes labor protections more seriously than probably any other state. Beyond federal requirements, you're dealing with state-specific taxes like State Disability Insurance and Employment Training Tax, strict wage statement rules per California Labor Code Section 226, and California's detailed break and overtime requirements.

Once you understand the system and get registered with the right agencies, running payroll becomes routine. The key is starting with a solid foundation so you're not scrambling to fix things later.

Step 1: Register your business for payroll taxes

Before you run your first payroll, register your business with both federal and California state agencies. This establishes you as an employer and sets up your tax accounts.

Federal EIN vs California employer ID

Your federal Employer Identification Number is like a Social Security number for your business. Get this from the IRS to report federal income tax withholding and pay federal payroll taxes like Social Security and Medicare.

Your California State Employer Identification Number is separate. You'll get this when you register with California EDD. This number identifies you for California state payroll tax purposes, including unemployment insurance and disability insurance.

You need both. The federal EIN handles federal tax stuff, while the California SEIN manages state-specific requirements.

Register for your EIN first through the IRS online application. It takes about 15 minutes and you get your number immediately. Then register with California EDD either online, by mail, or by fax using Form DE 1.

Step 2: Get your California employer payroll tax account number

Your California Employer Payroll Tax Account Number is your unique identifier for managing all state payroll tax stuff. You'll use this number every time you file wage reports, make tax deposits, or talk to EDD about payroll.

When you register with EDD, they'll assign you this seven-digit account number. It shows up on all correspondence from EDD and works as your login for the e-Services for Business portal. Think of it as your master key for California payroll compliance.

EDD employer account number vs Other payroll IDs

The terms get confusing because California uses several identification numbers for employers. Your EDD Employer Account Number and your California Employer Payroll Tax Account Number are the same thing—just different names for your seven-digit state payroll identifier per EDD's account number information.

This is different from your UI Employer Registration Number, which specifically relates to your Unemployment Insurance account. However, in most cases, these numbers are identical or closely linked within the EDD system.

Your California SEIN is yet another term you might see, though it's gradually being phased out in favor of "Employer Payroll Tax Account Number" in official communications.

How to look up or recover your employer account number

Lost your California Employer Payroll Tax Account Number? Check any previous correspondence from EDD—your account number appears on every letter, notice, and form they've sent you.

You can also find it by logging into e-Services for Business. Your account number displays on your home screen once you're signed in. If you haven't enrolled in e-Services yet, you'll need your account number to register, which creates a fun catch-22.

Can't locate your number anywhere? Contact the EDD Taxpayer Assistance Center at 1-888-745-3886. Have your federal EIN and business information ready. They'll verify your identity and provide your California account number.

Step 3: Enroll in EDD e-Services for Business

EDD e-Services for Business is California's online portal for managing your payroll tax obligations. Instead of mailing paper forms and waiting weeks for responses, you'll file reports, make payments, and manage your account entirely online.

To enroll, visit the e-Services for Business registration page. You'll need your California Employer Payroll Tax Account Number, federal EIN, and basic business information. The system walks you through creating your login credentials and setting up online access to your account per EDD's e-Services enrollment instructions.

Once enrolled, you can view your account history, correspondence from EDD, and payment status instantly. The system sends email notifications for important deadlines and new messages, which beats waiting for paper mail to arrive.

What you can do in e-Services for Business

Through e-Services for Business, you can file your quarterly Form DE 9 (Quarterly Contribution Return and Report of Wages) electronically. This alone saves significant time compared to calculating everything manually and mailing paper forms.

You can deposit state payroll taxes, view your payment history, and download copies of filed returns. Need to update your business address or banking information? Handle it instantly through the portal instead of sending written notifications and waiting for processing per EDD's e-Services features.

The portal also lets you manage unemployment insurance claims, respond to benefit charges, and access tax rate information for budgeting purposes. For businesses with California employees, e-Services essentially becomes your payroll tax headquarters.

Step 4: Understand California payroll taxes

California payroll taxes fund state programs like unemployment insurance, disability insurance, and workforce training. As an employer, you're responsible for withholding certain taxes from employee paychecks and contributing your own share to other programs.

Understanding which taxes you withhold versus which you pay directly helps you calculate the true cost of each employee. It also makes sure you're depositing the right amounts to the right accounts on the correct schedule.

Employer vs employee payroll taxes in California

Taxes you withhold from employee wages:

• Personal Income Tax (PIT): California state income tax based on employee withholding elections on Form DE 4
• State Disability Insurance (SDI): 1.1% of wages up to the annual SDI taxable wage limit ($153,164 for 2024) per EDD's SDI rate information

Taxes you pay as the employer:

• State Unemployment Insurance (SUI): Your rate varies based on your industry and experience rating, ranging from 1.5% to 6.2% on the first $7,000 of each employee's annual wages per the EDD UI rate schedule
• Employment Training Tax (ETT): 0.1% on the first $7,000 of each employee's annual wages for most employers, as detailed in EDD's ETT information

You also handle federal payroll taxes (Social Security, Medicare, and federal income tax withholding), but those follow IRS rules rather than California-specific requirements.

Types of California payroll taxes

Personal Income Tax (PIT) is California's version of state income tax. You withhold it from employee paychecks based on their earnings and the information they provided on Form DE 4 per California's withholding requirements. California has progressive tax brackets, so withholding amounts vary significantly between employees based on their wages and filing status.

State Disability Insurance (SDI) provides short-term benefit payments to eligible workers who can't work due to non-work-related illness, injury, or pregnancy per EDD's SDI program information. Employees pay for this insurance through payroll deductions. The program also includes Paid Family Leave, which allows workers to take time off to care for a seriously ill family member or bond with a new child.

State Unemployment Insurance (SUI) funds unemployment benefits for workers who lose their jobs through no fault of their own according to California's UI program. You pay this tax as the employer—it doesn't come out of employee paychecks. New employers typically pay 3.4% on the first $7,000 of each employee's wages per EDD's new employer tax rate, with rates adjusting annually based on your claims experience.

Employment Training Tax (ETT) funds workforce training programs throughout California per EDD's ETT program details. Most employers pay 0.1% on the first $7,000 of each employee's annual wages. This tax applies in addition to your SUI contributions.

Step 5: File payroll tax forms and reports

California requires regular reporting of wages paid and taxes collected. Your primary filing is Form DE 9, officially called the Quarterly Contribution Return and Report of Wages.

File Form DE 9 by the last day of the month following the end of each calendar quarter per EDD's quarterly filing requirements. That means April 30, July 31, October 31, and January 31. The form reports total wages paid to each employee during the quarter and calculates your SUI and ETT obligations.

You can file Form DE 9 through e-Services for Business or mail a paper form. Electronic filing is faster and reduces errors since the system calculates your tax liability automatically. Homebase files your Form DE 9 electronically and handles all the EDD reporting, so you're not scrambling to remember quarterly deadlines.

For depositing withheld PIT and SDI, California follows different schedules based on your withholding amount per EDD's deposit requirements. If you withhold more than $350 in a quarter, you'll need to deposit at least quarterly. Larger employers must deposit monthly or even more frequently. Homebase tracks your deposit schedule and handles California tax deposits automatically—you won't miss a deadline.

You'll also file an annual Form DE 88 (California Payroll Tax Deposit Requirements) if you withhold more than $350 in PIT/SDI in a calendar quarter according to EDD's DE 88 filing instructions. This reconciles your total annual withholding and confirms your deposit schedule for the upcoming year.

Step 6: Run payroll and stay compliant

Once your accounts are set up and you understand the tax structure, running payroll becomes a regular process. California requires you to pay employees at least twice per month for most workers per California Labor Code Section 204. You choose your pay schedule—weekly, biweekly, or semimonthly—but you must stay consistent and pay on time.

Every time you run payroll, withhold the appropriate federal and state taxes from employee paychecks. Calculate your employer contributions for SUI and ETT. Deposit withheld taxes according to your deposit schedule, then maintain detailed records of everything.

California mandates specific information on wage statements (pay stubs) per California Labor Code Section 226. Each statement must show gross wages, total hours worked for non-exempt employees, all deductions, net wages, pay period dates, employee name and Social Security number, employer name and address, and applicable hourly rates. Every Homebase paycheck comes with compliant wage statements that include everything California requires—no template hunting needed.

Keep payroll records for at least four years according to California's recordkeeping requirements. California and federal law require you to maintain documentation of hours worked, wages paid, deductions taken, and taxes deposited. During audits or unemployment claims, these records become your primary defense. Homebase stores your payroll records for you, so you're audit-ready without filing cabinets full of paper.

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Payroll software vs Doing payroll yourself

Running payroll manually means calculating everything yourself—withholding amounts, employer contributions, net pay after deductions. You'll fill out forms by hand or in spreadsheets, then mail checks or initiate bank transfers yourself. This approach works if you have just one or two employees and feel confident handling the math and deadlines.

Payroll software automates the calculations, tax deposits, and form filing. Systems like Homebase calculate federal and California taxes for each paycheck, handle direct deposit, and file your quarterly Form DE 9 electronically. They also stay updated on tax rate changes and filing requirements automatically.

For most small business owners, payroll software pays for itself by eliminating errors and saving hours of work each pay period. Manual payroll might cost less upfront, but one miscalculation or missed deadline can result in penalties that exceed a year's worth of software fees.

When evaluating payroll software, confirm that the system handles California-specific requirements including PIT withholding, SDI deductions, SUI and ETT calculations, and electronic filing through EDD. Services like Gusto's California registration support can help with the setup process by registering you with state agencies as part of their onboarding.

Homebase automatically calculates hours, breaks, and overtime for California—no more dividing by 60 or worrying if you got the math right. Run payroll without doing math.

California payroll setup FAQs

How long does it take to register for payroll in California? 

Federal EIN registration through the IRS online application is immediate. California EDD registration typically takes 2-3 weeks if you file online, longer if you mail Form DE 1 per EDD's registration timeline. Plan to start this process at least a month before you need to run your first payroll.

Where do I find my California employer payroll tax account number? 

Your seven-digit account number appears on all EDD correspondence. You can also find it by logging into e-Services for Business. If you've lost it, call the EDD Taxpayer Assistance Center at 1-888-745-3886 with your federal EIN ready.

What's the difference between my EIN and my California employer ID? 

Your federal EIN identifies you to the IRS for federal taxes. Your California State Employer Identification Number (SEIN) or Employer Payroll Tax Account Number identifies you to EDD for state taxes. You need both numbers and must register separately with each agency.

Do I need to register for California payroll if I'm a sole proprietor with no employees? 

No. You only register as an employer when you hire your first employee per EDD's employer registration requirements. Sole proprietors without employees don't need to set up payroll accounts or file employer tax returns.

Set up California payroll without the headache

Setting up payroll in California involves more steps than many other states, but following this guide gets you registered correctly and positioned for ongoing compliance. Register with the IRS and California EDD, enroll in e-Services for Business, understand your tax obligations, and establish a consistent process for running payroll and filing reports.

The initial setup takes time and attention to detail, but once your systems are in place, payroll becomes routine. Keep accurate records, file on time, and stay current with any changes to California tax rates or requirements.

Ready to simplify California payroll? Homebase handles all the California-specific calculations, tax deposits, and form filing automatically. Stop worrying about missed deadlines or incorrect withholding. Run payroll in minutes, not hours, while we handle the compliance details. Try Homebase free and pay your team with confidence.

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