Getting your business ready to run payroll has both federal and state components. While the federal process looks the same for every business, the state process looks a little different depending on where you live.
That can make it tricky for employers with employees in multiple states, because the steps to register have a lot of variation. Luckily, for businesses in California, the setup process is straightforward and streamlined.
The California Employment Development Department (EDD) is the government agency that your business needs to register with to get set up for payroll in California. To start the process, head to the EDD Employer Registration page on the EDD site.
Find out if you are eligible to register and then complete the registration process. Once you complete the process, the agency will assign your business an account number so you can file and pay your payroll taxes. In California, your business only needs to register with this one agency, while in some other states you must register with two or more agencies.
The two main categories of taxes that exist at the state level are income taxes and unemployment taxes. Income taxes are paid by employees and unemployment taxes are paid by employers. California has both income and unemployment tax, plus a couple more that you should be aware of.
The two employer-paid payroll taxes in California are Unemployment Insurance (UI) and Employment Training Tax (ETT). The state will assign your business a UI rate. Generally, the UI rate for new employers is 3.4%, with a wage base of $7,000. The ETT rate is 0.1%, with a wage base of $7,000.
The two employee-paid payroll taxes in California are income tax and State Disability Insurance (SDI). Income tax varies based on each individual employee’s Form W-4, which provides their withholding allowances. SDI is 1.2%, with a wage base of $128,298 in 2021. The wage base for SDI typically changes every year, unlike other wages bases that change more infrequently.
It is always a good idea to understand any local taxes or other payroll-related regulations that may apply to your business based on the state or county where your employees are working. For example, many cities and counties in California have their own minimum wage standards. It is important to stay on top of these local regulations as you go through your payroll registration process so you are informed and prepared.
There are a lot of regulations to remember, and having a system in place that can track and organize these laws and restrictions for accurate payroll is important.
Homebase is an all-in-one management platform with robust payroll features to automate the payroll process, like self-onboarding and e-signing of forms; automatic calculations of wages and taxes; automatic payment to employees, the state, and the IRS; and keeping track of California’s payroll laws and tax necessities.
The best part? The employee app provides on-demand access to hours, schedules, earnings, pay stubs, and W-2s. Additionally, requests for time-off or shift coverage can be made within the app, along with payday notifications.
Keep your business compliant and employees happy with the many features of Homebase. Sign up today!