How Do You Start Payroll for a Small Business? (with WA State Details)

Starting payroll for the first time can feel like a big step.

You are not just paying someone for their time. You are also setting up a system for taxes, records, payroll reports, and employee information.

The good news? Payroll gets much easier when you know what to gather before the first paycheck.

If you are using QuickBooks Online Payroll, it can help with many of the moving pieces. But the setup still matters. Payroll software works best when the business information, employee details, and state accounts are entered correctly from the beginning.

What Does Payroll Include?

Payroll is more than writing a check.

For most small businesses, payroll includes:

• Paying employees
• Withholding payroll taxes
• Paying employer payroll taxes
• Tracking employee hours
• Recording payroll expenses
• Filing payroll tax reports
• Keeping payroll records
• Sending year-end forms, such as W-2s

That may sound like a lot. But once your system is set up, payroll becomes a regular business routine.

Are You Paying Employees or Contractors?

Before you start payroll, make sure you know whether the worker is an employee or an independent contractor.

This matters because employees and contractors are handled differently.

An employee usually goes through payroll. They may have taxes withheld from their paycheck. They usually receive a W-2 at year-end.

An independent contractor is usually paid outside of payroll. They may receive a 1099-NEC if they meet the reporting requirements.

This is an important first step. If a worker is really an employee, treating them like a contractor can cause tax and payroll problems later.

What Do You Need Before Setting Up Payroll as a Small Business?

Before you run payroll, gather the basic business and employee information.

Business – You will usually need:

• Your legal business name
• Your business address
• Your EIN from the IRS
• Your payroll bank account
• Your state payroll account numbers
• Your payroll schedule
• Workers’ compensation information
• State tax or reporting account details

If you are using QuickBooks Online Payroll, you will enter much of this information during payroll setup.

It is better to gather this before payday. Waiting until the day payroll is due can create stress and mistakes.

Employee – You will usually need:

• Legal name
• Address
• Social Security number
• Hire date
• Pay rate or salary
• Form W-4
• Form I-9
• Direct deposit authorization, if using direct deposit
• Benefit deductions, if any
• Reimbursement details, if any

You should also decide whether the employee will track hours, salary, overtime, sick leave, or paid time off.

Choose a Payroll Schedule

Your payroll schedule tells you how often employees will be paid.

Common payroll schedules include:

• Weekly
• Every two weeks
• Twice a month
• Monthly

Many small businesses choose every two weeks because it is predictable for employees and easier to manage than weekly payroll.

Before choosing a schedule, check your state rules. Some states have payday requirements that affect how often employees must be paid.

What Taxes Do Employers Pay on Payroll?

Payroll taxes can include both employee and employer taxes.

At the federal level, payroll may include:

• Federal income tax withholding
• Social Security tax
• Medicare tax
• Federal unemployment tax

The employee pays part of Social Security and Medicare through paycheck withholding. The employer also pays a matching part.

Employers may also need to pay unemployment taxes and file payroll tax reports.

State payroll rules are different in each state. That is why payroll setup should always include a state-specific review.

Payroll Is Different in Every State

Payroll is not only federal.

Each state may have its own rules for:

• State income tax withholding
• Unemployment insurance
• Workers’ compensation
• Paid family or medical leave
• Disability programs
• Sick leave
• Local taxes
• Quarterly wage reports

Some states require private workers’ compensation insurance. Other states handle workers’ compensation through a state-run system.

Washington State is a good example of why state payroll setup matters.

Washington State Payroll: What Small Employers Need to Know

Washington does not have a personal state income tax. That means Washington employers generally do not withhold state income tax from employee paychecks.

But Washington employers still have payroll responsibilities.

If you have employees in Washington, payroll may include:

• Unemployment insurance
• Labor & Industries workers’ compensation
• Paid Family & Medical Leave
• WA Cares Fund premiums
• Paid sick leave tracking
• Quarterly payroll reports

This is where payroll can get confusing for new employers.

No state income tax does not mean no state payroll setup.

The Washington Small Business Guide defines payroll as employee payments that must be reported to agencies such as the IRS, Social Security Administration, Washington Employment Security Department, and Washington Department of Labor & Industries.

Washington Workers’ Compensation: Labor & Industries

In Washington, workers’ compensation is usually handled through the state.

Employers do not usually buy a regular private workers’ compensation policy. Instead, Washington employers generally get workers’ compensation coverage through Labor & Industries, often called L&I.

If you are hiring employees in Washington, you may need to apply for or update your Washington State business license so you can get a workers’ compensation account.

This account matters because L&I premiums depend on the type of work being done and the hours worked.

Before running payroll in Washington, make sure:

• Your state business license is updated
• Your L&I account is active
• Employee work classifications are correct
• Employee hours are tracked correctly
• Your payroll system is set up to report the right information

This is one place where guessing can create problems later.

Washington Unemployment Insurance

Washington employers may also need to pay unemployment insurance taxes.

Unemployment taxes help fund unemployment benefits for eligible workers.

The tax rate can depend on the business, industry, and employer history. New employers may receive a rate assigned by the state.

If you are setting up payroll in QuickBooks Online Payroll, you may need your Washington Employment Security Department account information before payroll can be fully set up.

Washington Paid Family & Medical Leave

Washington also has Paid Family & Medical Leave.

This is often called PFML or Paid Leave.

Paid Leave is funded through payroll premiums. These premiums are based on employee wages.

For 2026, Washington lists the Paid Leave premium rate at 1.13% of employee gross wages, up to the Social Security wage cap.

Part of the premium is paid by the employee. Part may be paid by the employer.

Small employers may not have to pay the employer portion. However, they still need to collect or pay the employee portion and file the required reports.

This is an important detail for small businesses.

Even if the employer does not owe the employer portion, the reporting and payroll setup still matter.

WA Cares Fund

Washington also has the WA Cares Fund.

WA Cares is Washington’s long-term care insurance program. It is funded through employee payroll deductions.

Employers collect WA Cares premiums from employee wages and report them to the state.

This is another payroll item that should be set up before the first payroll is processed.

Paid Leave and WA Cares are reported together, which can help simplify the reporting process. But you still need to make sure the payroll setup is correct.

Washington Quarterly Payroll Reports

Washington employers file payroll reports every quarter.

In general, Washington employers file:

• A tax and wage report for unemployment insurance
• A combined report for Paid Leave and WA Cares

Quarterly reports are one reason payroll software can be helpful.

However, software still needs the right information. If the account numbers or rates are wrong, the reports may also be wrong.

Choosing How You Will Run Payroll

Small business owners usually have three options.

Option 1: Run Payroll Manually

You can run payroll manually, but it can be risky.

You need to calculate wages, taxes, deductions, deposits, and reports yourself.

This may work for a very simple business, but it can become stressful quickly.

Option 2: Use Payroll Software

Payroll software can help calculate paychecks, track taxes, and organize reports.

This is where QuickBooks Online Payroll can be helpful.

Option 3: Work With a Bookkeeper or Payroll Professional

A bookkeeper or payroll professional can help make sure payroll is set up correctly.

This can be especially helpful when you are hiring your first employee, setting up QuickBooks Online Payroll, or dealing with Washington payroll accounts.

How QuickBooks Online Payroll Can Help

QuickBooks Online Payroll can help small businesses manage payroll in one place.

Depending on your setup and plan, QuickBooks Online Payroll may help with:

• Employee setup
• Paycheck calculations
• Direct deposit
• Payroll tax tracking
• Payroll reports
• Sick leave or PTO tracking
• Contractor payments
• Year-end forms
• Payroll expense tracking in QuickBooks Online

QuickBooks can make payroll easier. But it is not magic.

The setup still needs to be reviewed carefully.

For Washington employers, that means checking items like unemployment insurance, L&I workers’ compensation, Paid Leave, and WA Cares.

Basic Steps to Start Payroll in QuickBooks Online

Here is a simple overview of how payroll setup may look in QuickBooks Online Payroll.

1. Choose Your Payroll Plan

QuickBooks offers different payroll plans. Choose the one that fits the level of support your business needs.

2. Enter Your Business Information

Add your business name, address, EIN, and payroll contact information.

3. Add Payroll Tax Information

Enter your federal and state payroll details.

For Washington businesses, this may include Employment Security Department information, Paid Leave, WA Cares, and L&I details.

4. Connect Your Payroll Bank Account

If you plan to use direct deposit, your bank account needs to be connected and verified.

Do this before your first payday.

5. Add employees

Enter each employee’s personal information, tax withholding details, pay rate, and hire date.

6. Set the payroll schedule

Choose how often employees will be paid.

Make sure the first pay date and pay period are correct.

7. Add Deductions and Reimbursements

Add items such as benefits, retirement deductions, garnishments, mileage, reimbursements, or other pay adjustments.

8. Set up Sick Leave or PTO

If your business tracks sick leave, vacation, or PTO, make sure those settings are correct.

Washington employers should pay special attention to paid sick leave rules.

9. Review Before You Submit

Before running the first payroll, review every paycheck.

Check the pay rate, hours, deductions, taxes, and direct deposit information.

10. Review Payroll Reports

After payroll is processed, review your payroll reports.

This helps you catch mistakes early.

First Payroll Checklist

Before you click submit on the first payroll, review these items:

Do you have:

• EIN
• Business address
• Payroll bank account
• State payroll account details
• Employee W-4
• Employee I-9
• Employee pay rate
• Employee hire date
• Payroll schedule
• Direct deposit details
• Workers’ comp setup
• Sick leave or PTO settings
• Benefit deductions
• Reimbursements
• Correct first pay date
• Correct pay period

For Washington employers, also check:

• L&I workers’ compensation account
• Employment Security Department account
• Paid Family & Medical Leave setup
• WA Cares setup
• Paid sick leave tracking
• Quarterly reporting requirements

A clean setup can save a lot of cleanup later.

Common Payroll Mistakes Small Businesses Make

Payroll mistakes are common, especially when a business hires its first employee.

Some common mistakes include:

• Waiting until payday to set up payroll
• Misclassifying employees as contractors
• Forgetting to register for state payroll accounts
• Not setting up workers’ compensation correctly
• Using the wrong unemployment tax rate
• Forgetting state paid leave programs
• Entering the wrong pay period
• Missing payroll tax deposit deadlines
• Not tracking paid sick leave
• Forgetting to review payroll reports
• Assuming payroll software will catch every setup issue

Payroll software is helpful, but it does not replace careful setup.

Payroll Services for a Small Business?

You may want payroll help if:

• You are hiring your first employee
• You are switching from contractors to employees
• You are setting up QuickBooks Online Payroll
• You have employees in more than one state
• You are unsure about Washington payroll accounts
• You received a payroll tax notice
• Payroll reports do not match your bookkeeping
• Payroll is taking too much time

It is usually easier to set payroll up correctly from the beginning than to fix payroll mistakes later.

Starting payroll is a big milestone for a small business.

It means your business is growing. It also means you have new responsibilities.

Before running payroll, gather your business information, employee forms, payroll schedule, bank details, and state account information.

If you are in Washington State, remember that payroll may include more than federal taxes. You may also need to set up unemployment insurance, L&I workers’ compensation, Paid Family & Medical Leave, WA Cares, paid sick leave tracking, and quarterly reports.

QuickBooks Online Payroll can make the process easier. But the setup still matters.

When payroll is set up correctly from the start, payday feels less stressful and your bookkeeping stays cleaner.

If you are starting payroll for the first time or want help setting up QuickBooks Online Payroll correctly, working with a bookkeeper can help you avoid mistakes before the first paycheck goes out.

 

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