Who this is for
- Businesses hiring their first employee in California, including an out-of-state company with a California-based worker
- LLC, partnership and S corporation owners asking whether they belong on California payroll
Not covered here
- The federal first-employee checklist: EIN, Form 941, Form I-9 and Form W-4
- Employees who live or work in more than one state
- How much salary an S corporation owner should take
- Missed deposits or returns, and worker classification
How do I set up payroll in California, and when do I register with the EDD?
Register with the Employment Development Department (EDD) within 15 days of becoming an employer: a business that hires employees and pays more than $100 in wages in a calendar quarter (EDD: Step 1). Wages count whether paid by check, cash, electronic transfer or payment app. The EDD says all employers, including out-of-state employers, file and pay electronically (EDD: e-file mandate).
Registration is online. Enroll in e-Services for Business, verify your email within 24 hours, then choose New Employer and complete the application. You receive an eight-digit employer payroll tax account number, needed for every return, report and payment (EDD: Step 3). A paper form (DE 1) exists for employers who cannot register online and takes longer.
What makes a case less simple: a worker in California for an employer based elsewhere, an owner who wants to be on payroll, an employee who splits time between states, or accounts that are already behind. Gather the federal EIN, the entity type and its federal tax classification, the first pay date, and expected wages by quarter.
The federal first-employee steps (EIN, Form 941, Form I-9, Form W-4) are in setting up payroll for your first employee.
What are California's four payroll taxes, and who pays each?
California has four payroll taxes. The employer pays two; the employer withholds the other two from the employee's wages and sends them to the EDD (EDD: payroll taxes).
| Tax | Who bears it | What it funds | Taxable wages |
|---|---|---|---|
| Unemployment Insurance (UI) | Employer | Benefits for workers who lose jobs | First $7,000 per employee per year |
| Employment Training Tax (ETT) | Employer | Training in targeted industries | First $7,000 per employee per year |
| State Disability Insurance (SDI) | Employee, withheld by employer | Disability insurance and paid family leave | All wages, no limit |
| Personal Income Tax (PIT) | Employee, withheld by employer | The employee's California income tax | All wages |
Wages are generally subject to all four, but some types of work are not. See the EDD's types of employment sheet before assuming a worker is covered or exempt (EDD: DE 44).
What are this year's UI, ETT and SDI rates and wage limits?
For the tax year of this page, the SDI withholding rate is 1.3% on all wages, the ETT rate is 0.1% (not charged while an employer's UI reserve account is negative, when its UI rate is higher instead), and UI and ETT apply only to the first $7,000 of each employee's wages (EDD: rates). The EDD sets rates and wage limits each year, so check the rates page before the first pay run of a new year.
| Tax | Rate | Wage limit per employee |
|---|---|---|
| UI, new employer | 3.4% for two to three years | $7,000 |
| UI, later years | 1.5% to 6.2%, set by your experience | $7,000 |
| ETT | 0.1% | $7,000 |
| SDI | 1.3% | None |
The EDD mails a Notice of Contribution Rates (DE 2088) each December, and you have 60 days from its mailing date to protest any item except SDI and ETT, which are set by law (EDD: rates).
Two traps. SDI has no employer share: it comes only from the employee's pay, and it no longer has a wage cap, so it applies to every paycheck all year. UI and ETT work the other way: they stop once an employee's wages reach the limit (EDD: DE 44).
How do I withhold California income tax (Form DE 4)?
Have each new employee complete both the federal Form W-4 and the California Employee's Withholding Allowance Certificate (DE 4), then withhold state tax using the DE 4. The W-4 sets federal withholding only (EDD: rates and withholding).
If you have no properly completed DE 4 from an employee, withhold as if the employee were single with zero allowances. The EDD publishes two withholding methods each year: a wage bracket table (Method A) and an exact calculation (Method B). Both are on the rates page. An employee may ask for no California withholding only if they had no federal or state income tax liability for the prior year and expect none for the current year, and the exemption must be renewed on a new DE 4 each year by February 15 (EDD: DE 44).
Bonuses and other supplemental wages follow separate withholding rules in the DE 44.
When do I deposit SDI and PIT, and when are UI and ETT due?
UI and ETT are due quarterly. SDI and PIT deposits are due on a schedule set by your federal deposit schedule and the amount of California PIT you have accumulated (EDD: deposits). You may pay UI and ETT early, together with a SDI and PIT deposit.
| Federal deposit schedule | Accumulated PIT withheld | SDI and PIT due |
|---|---|---|
| Monthly, quarterly or annual | Under $350 | With the quarterly due date |
| Monthly, quarterly or annual | $350 or more | 15th of the following month |
| Semiweekly or next-day | Under $350 | With the quarterly due date |
| Semiweekly or next-day | $350 to $400 | 15th of the following month |
| Semiweekly | Over $400 | Following Wednesday (Wednesday to Friday pay) or Friday (Saturday to Tuesday pay) |
| Next-day | Over $400 | Next business day |
Quarterly payments are due the 1st day after the quarter ends (April 1, July 1, October 1, January 1) and become late after the last day of that month. A due date that falls on a weekend or legal holiday moves to the next business day. Check the current deposit table. Deposits are made on a payroll tax deposit (DE 88) through e-Services for Business (EDD: DE 44).
Which returns and wage reports do I file each quarter, and must I file online?
File a quarterly return (DE 9) and a quarterly wage report (DE 9C), both online, every quarter. The DE 9 reconciles the wages and taxes for the quarter; the DE 9C lists each employee's wages, PIT wages and PIT withheld (EDD: required filings).
| Form | Purpose | When |
|---|---|---|
| DE 9 | Quarterly return: reconciles wages, taxes and deposits | Due the 1st after quarter end; late after the last day of that month |
| DE 9C | Quarterly wage report by employee | Same dates as the DE 9 |
| DE 88 | Payroll tax deposit for UI, ETT, SDI and PIT | By the deposit schedule above |
| DE 34 | New employee report | Within 20 days of the start date |
The mandate covers returns, wage reports and deposits. An employer can request a waiver on form DE 1245W if it truly cannot file electronically; without an approved waiver, a paper return costs $50 per return, even a paper return reporting no wages (EDD: e-file mandate).
A quarter with no wages still needs a DE 9 and DE 9C while the account is open. If no wages are expected for the next year, close the account in e-Services for Business (EDD: required filings).
Do I report new hires to California, and how fast?
Yes. Report every new or rehired employee who works in California to the EDD's New Employee Registry within 20 calendar days of the first day of work for wages, using a DE 34 in e-Services for Business (EDD: New Employee Registry). The report asks for your EDD account number and EIN and the employee's name, Social Security number, home address and start date.
A rehire is reportable if the employee was separated from the same employer for at least 60 consecutive days. An employer reporting electronically sends two reports a month, 12 to 16 days apart, and sends none if there is nothing to report. A late report can cost $24 per employee, or $490 if the employer and employee agreed to leave out or falsify the information.
Can an LLC member, partner or S corporation owner be on California payroll?
It depends on how the entity is taxed, and for an owner who works in the business the answer is not the same as the federal one. California's EDD applies its own rules by entity type. The LLC and partner rows below come from the EDD's information sheets on limited liability entities and types of employment, which cite the statutes. They are older sheets and the EDD's web pages do not restate them, so confirm with the EDD or a CPA before relying on a row for an owner. The officer row is also on the EDD's payroll tax FAQs.
| Owner | California payroll treatment |
|---|---|
| Member of an LLC taxed as a partnership | Not an employee for any of the four taxes |
| Member of an LLC taxed as a corporation | A statutory employee; compensation deductible as wages is subject to the payroll taxes, and the sole-shareholder SDI exclusion does not apply to an LLC member |
| General partner in a partnership | Drawings by a bona fide general partner are generally not wages |
| Limited partner | Payments for services are generally wages; a return on investment is not |
| Officer of a corporation subject to federal unemployment tax, including an S corporation, who performs services | An employee; UI, ETT and PIT apply, and SDI applies unless the officer is the only shareholder (or the only one besides a spouse or registered domestic partner) and has filed an exclusion (form DE 459), which starts with the quarter it is filed |
| Officer of a corporation not subject to federal unemployment tax | An employee, except that an officer who is the only shareholder (or the only one besides a spouse or registered domestic partner) is excluded from UI, ETT and SDI |
A single-member LLC that is ignored for federal tax is not addressed in these sheets, so confirm its treatment with the EDD before putting the owner on payroll (EDD: DE 231TE).
A person in charge of an LLC or LLP who willfully fails to pay California payroll taxes can be personally liable for the amount due, with penalties and interest, even though members of a California LLC are generally not liable for its debts just by being members (EDD: DE 231LLC).
How much salary an S corporation owner should take is a different question: see S corporation owner salary. For sole proprietors and LLC owners generally, see paying yourself from an LLC.
What does a late deposit or return cost?
The EDD charges 15% of a late payroll tax payment, plus interest, and the penalty is waived only for good cause (EDD: deposits; EDD: penalty chart). Interest is reset every six months (EDD: DE 44).
| Failure | Penalty |
|---|---|
| Payment made late | 15% of the late amount, plus interest |
| Return filed more than 60 days late, with tax still unpaid | A further 15% of the unpaid amount |
| Payment not made electronically | 15% of the payment |
| Return filed on paper without a waiver | $50 per return |
| DE 9C not filed within 15 days of the EDD's written demand | $20 per unreported employee |
| New hire reported late | $24 per employee |
An unpaid balance leads to a Statement of Account, and the EDD may record a state tax lien, which becomes public record (EDD: DE 44). If deposits or returns are already late, see behind on payroll taxes.
Example
All figures are illustrative US dollars.
A California LLC taxed as an S corporation hires its first employee
The LLC pays an employee $5,000 on the last day of each month. The employer withholds SDI at 1.3% on the full $5,000, which is $65. It also withholds California income tax from the DE 4 and the EDD's withholding table; assume the table gives $150. The employee receives $4,785 before federal income tax, Social Security and Medicare are withheld. The employer separately owes UI and ETT on the employee's first $7,000 of wages for the year. SDI and PIT are held in trust and deposited by the schedule, never kept as business cash.
A Delaware company with one remote employee in California
A Delaware company pays a new employee, who works only from home in California, $3,000 on August 10. That is above the wage trigger, so the company registers with the EDD by August 25, completes a DE 4 with the employee, and reports the hire on a DE 34 within 20 days of the first day worked. California withholding applies to wages for work done in California (EDD: DE 44). Whether another state also has a claim is the question for employees in another state.
A new employer's first year
A new employer is assigned a 3.4% UI rate (use the rate on your own notice). It pays one employee $5,000 a month, $60,000 over the year. UI is 3.4% of the first $7,000 of wages, which is $238. ETT is 0.1% of the same $7,000, which is $7. Both are fully paid by the second month of pay, so the employer owes nothing more in UI or ETT on that employee for the year. SDI withheld from the employee is 1.3% of all $60,000, which is $780, because SDI has no cap.
Different for you?
- Your worker lives or works partly in another state: see employees in another state.
- You are an S corporation owner deciding what to pay yourself: see S corporation owner salary.
- You pay people as contractors: California's worker-status tests differ from the federal ones; see contractors who may be employees.
- You are your LLC's only worker: see paying yourself from an LLC.
- A deposit or return is already late: see behind on payroll taxes.
- You still need the federal steps (EIN, Form 941, Form I-9, Form W-4): see setting up payroll for your first employee.
- You have several states, a corporate owner, or back filings to catch up: gather the EIN, entity type, first pay date, wages by quarter and any EDD notices, then get bookkeeping help.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| California employer registration deadline in days EDD says an employer meeting its business hiring and wage trigger must register within this many days | 15 Tax year 2026 | California EDD: Register as an employer Checked |
| California employer registration quarterly wage trigger Business hires employees and pays more than this amount in a calendar quarter | $100 Tax year 2026 | California EDD: Register as an employer Checked |
| California UI and ETT taxable wage limit per employee Per employee, per calendar year; the same limit applies to both taxes | $7,000 Tax year 2026 | California EDD: Contribution rates, withholding schedules, and meals and lodging values Checked |
| California SDI withholding rate Withheld from employee wages; covers disability insurance and paid family leave; no wage limit since 2024 | 1.3% Tax year 2026 | California EDD: Contribution rates, withholding schedules, and meals and lodging values Checked |
| California Employment Training Tax rate Employer paid, on the first wages up to the wage limit | 0.1% Tax year 2026 | California EDD: Contribution rates, withholding schedules, and meals and lodging values Checked |
| California UI rate assigned to a new employer Assigned for two to three years; after that the rate follows the employer's experience and the UI fund | 3.4% Tax year 2026 | California EDD: Contribution rates, withholding schedules, and meals and lodging values Checked |
| Lowest California UI contribution rate on the current schedule Schedule F+ range for the year | 1.5% Tax year 2026 | California EDD: Contribution rates, withholding schedules, and meals and lodging values Checked |
| Highest California UI contribution rate on the current schedule Schedule F+ range for the year | 6.2% Tax year 2026 | California EDD: Contribution rates, withholding schedules, and meals and lodging values Checked |
| Accumulated California PIT withholding below which SDI and PIT deposits can be quarterly Below this amount, deposits for most depositors are due quarterly | $350 Tax year 2026 | California EDD: Payroll tax deposits Checked |
| Accumulated California PIT withholding above which semiweekly and next-day depositors deposit more often Between the lower and upper thresholds, deposits are monthly; above it, the federal schedule sets the due date | $400 Tax year 2026 | California EDD: Payroll tax deposits Checked |
| California penalty per return filed on paper without a waiver E-file and e-pay mandate; also charged on a paper return reporting no wages | $50 | California EDD: E-file and e-pay mandate for employers Checked |
| California rehire reporting separation period Consecutive days separated from the same employer before a returning worker is a reportable rehire | 60 | California EDD: New Employee Registry Checked |
| California electronic new-hire reports per month Electronic new-hire filers' monthly reporting cadence; no empty report when no reportable worker | Two | California EDD: New Employee Registry Checked |
| Minimum days between California electronic new-hire reports Minimum spacing for two monthly electronic reports when there are reportable hires | 12 | California EDD: New Employee Registry Checked |
| Maximum days between California electronic new-hire reports Maximum spacing for two monthly electronic reports when there are reportable hires | 16 | California EDD: New Employee Registry Checked |
| California penalty per employee for late new-hire reporting EDD says this amount may be charged per unreported worker | $24 Tax year 2026 | California EDD: New Employee Registry Checked |
| California penalty for intentional agreement to omit or falsify new-hire report EDD says this amount may be charged for an intentional employer-employee agreement | $490 Tax year 2026 | California EDD: New Employee Registry Checked |
| California penalty on late payroll tax payments Of the late amount, plus interest; waived only for good cause | 15% | California EDD: Penalty Reference Chart (DE 231EP) Checked |
| California penalty for a return filed more than 60 days late Of contributions and PIT withholdings not paid by the due date; added to the late payment penalty (CUIC 1112.5(a)); waived for good cause | 15% | California EDD: Penalty Reference Chart (DE 231EP) Checked |
| California penalty for a payroll tax payment not made electronically Of the contributions; e-file and e-pay mandate (CUIC 1112(b)); waived for good cause | 15% | California EDD: Penalty Reference Chart (DE 231EP) Checked |
| California penalty per wage item for a late or non-electronic DE 9C Charged per unreported employee if the DE 9C is not filed within 15 days of EDD's written demand, or per wage item if not filed electronically | $20 | California EDD: Required filings and due dates Checked |
Primary sources
- California EDD: Payroll taxes resources
- California EDD: Step 1, register as an employer
- California EDD: Step 3, register for a payroll tax account
- California EDD: Contribution rates, withholding schedules, and meals and lodging values
- California EDD: Payroll tax deposits
- California EDD: Required filings and due dates
- California EDD: E-file and e-pay mandate for employers
- California EDD: New Employee Registry
- California EDD: California Employer's Guide (DE 44)
- California EDD: Limited liability entities (DE 231LLC)
- California EDD: Types of employment (DE 231TE)
- California EDD: Payroll taxes FAQs
- California EDD: Penalty Reference Chart (DE 231EP)
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.