How to Do Payroll in California

Last reviewed: July 2026

Running payroll in California means dealing with two governments at once. Federal rules set the floor: an EIN, a W-4, Social Security and Medicare withholding, and quarterly Form 941 filings. California layers its own registration, its own withholding form, and pay timing rules that are noticeably stricter than federal law requires. Here is the setup, in order, for a small business hiring its first California employee.

Step 1: Get Your Federal EIN

Before touching any state paperwork, apply for an Employer Identification Number (EIN) from the IRS. The online application at IRS.gov is free and issues your number immediately. You will need this EIN on every subsequent form, both federal and state, so get it first.

Step 2: Register With the EDD

California's Employment Development Department (EDD) is the single agency that administers unemployment insurance, employment training tax, state disability insurance withholding, and personal income tax (PIT) withholding for employers. That last point trips people up: the Franchise Tax Board (FTB) processes individual tax returns, but it is EDD, not the FTB, that handles employer withholding registration and deposits.

Register online through EDD's e-Services for Business portal within 15 days of paying $100 or more in wages during a calendar quarter. You will need your federal EIN, business entity type, and NAICS code. EDD assigns your Employer Account Number and your initial SUI rate once the application is processed, usually within 5 to 10 business days. Our EDD registration walkthrough covers every field on the application.

New hires also need to be reported to EDD's New Employee Registry within 20 days of their start date. This filing satisfies both state and federal new hire reporting in one step.

Step 3: Set Up Withholding

Every employee completes two withholding forms: the federal Form W-4 and California's own DE 4, Employee's Withholding Allowance Certificate. The DE 4 exists because California's tax brackets and adjustments don't line up with the federal ones, so a worker's federal W-4 numbers won't automatically produce the right state withholding. If an employee doesn't return a DE 4, withhold state tax as if they had claimed zero allowances.

Once you have both forms on file, run a sample paycheck through the paycheck calculator and, if a new hire is unsure how to fill out their federal form, point them to the W-4 helper before their first pay period.

Step 4: Understand SUI

State unemployment insurance is funded entirely by the employer; nothing is withheld from employee pay. New employers pay a standard rate of 3.4% for their first two to three years, applied to a taxable wage base of $7,000 per employee per year. That wage base has stayed flat for years, so once an employee crosses $7,000 in wages for the year, no further SUI applies to them. After your first few years, EDD recalculates your rate based on your unemployment claims history. See our SUI rates guide for the full rate schedule.

SDI and Paid Family Leave

California is one of the few states that also requires state disability insurance withholding from employee wages, which funds both short-term disability and paid family leave benefits. This is a payroll setup item worth knowing about early, but it runs on its own rate and its own rules. Our separate SDI and PFL guide covers the current rate and how the benefit works.

Step 5: Pay Frequency and Final Pay

California law requires wages to be paid at least twice during each calendar month on regular paydays designated in advance, with specific deadlines tied to each earning period. Most small employers choose semi-monthly or biweekly schedules, both of which satisfy this minimum comfortably.

Where California stands apart is final pay. If you terminate or lay off an employee, you must pay all wages owed, including accrued vacation, immediately at the time of termination. There is no grace period. An employee who quits and gives at least 72 hours notice must be paid on their last working day. An employee who quits without notice must be paid within 72 hours of quitting. Missing these windows can trigger waiting-time penalties equal to a full day's wages for each day the payment is late, up to 30 days. Review our payday laws guide for the complete rule set.

Step 6: Deposit and Filing Calendar

EDD assigns your deposit schedule for PIT and SDI withholding based on the amount you withhold each quarter: light withholders deposit quarterly, mid-size withholders deposit monthly, and larger withholders deposit semi-weekly. SUI and ETT are always reported and paid quarterly, alongside your DE 9 and DE 9C wage reports, due the last day of the month following each quarter (April 30, July 31, October 31, and January 31).

On the federal side, most small employers file Form 941 quarterly and deposit federal withholding either monthly or semi-weekly, depending on their lookback-period liability. Our Form 941 guide walks through those federal deadlines and how they interact with your state schedule.

Step 7: Year-End W-2s

By January 31 each year, issue Form W-2 to every employee and file copies with the Social Security Administration. California wage and withholding figures appear in the state boxes of the same W-2, so there is no separate state-only wage statement to prepare. If you use payroll software, W-2 generation and e-filing are typically included, which removes most of the manual work at year-end.

Frequently Asked Questions

What do I need before running my first payroll in California?

You need a federal EIN from the IRS, an EDD employer payroll tax account for SUI and withholding, a completed W-4 and DE 4 from each employee, and a chosen pay frequency and pay date.

How is California payroll different from other states?

California has its own withholding certificate (the DE 4), a state disability insurance withholding, and unusually strict final-pay timing rules that require faster payout than federal law alone requires.

How fast do I have to pay a terminated employee in California?

An employee you fire or lay off must be paid all wages immediately at the time of termination. An employee who quits with at least 72 hours notice must be paid on their last day; one who quits without notice must be paid within 72 hours.

Which agency handles California payroll tax registration?

The Employment Development Department (EDD) handles employer registration, SUI, and state income tax withholding deposits. The Franchise Tax Board handles personal income tax returns, not employer payroll registration.