How to Budget for Payroll Beyond the Wages (2026)

Quick answer

As an employer, you are responsible for four groups of payroll taxes. You withhold federal income tax from each employee's pay, based on the Form W-4 they give you. You also withhold the employee's share of Social Security and Medicare and pay a matching employer share from your own funds.

On top of that, you pay federal unemployment tax (FUTA), which comes only from the employer and is never deducted from the employee's pay. You also pay state unemployment tax and handle any state or local withholding that applies where you operate.

The rates and wage bases for these taxes change every year, so this page does not list them. The IRS publishes current federal figures in Publication 15 (Circular E), Employer's Tax Guide, and your state's labor or workforce agency publishes the state figures. A complete budget also covers the payroll software fee and the time it takes to run payroll on the schedule your state requires.

What payroll taxes are you responsible for as an employer?

Employer payroll taxes fall into two groups, and the difference matters for your budget. The first group is money you collect from the employee and pass on to the government: federal income tax withholding and the employee's half of Social Security and Medicare. That money is part of the wage you already agreed to pay. You must withhold and deposit it correctly, but it does not add to what each employee costs you.

The second group is the true cost beyond wages: your employer share of Social Security and Medicare, plus FUTA and state unemployment tax. None of it comes out of the employee's pay. It sits on top of gross wages, so this is the number to forecast when you ask what a hire really costs.

Publication 15 explains both groups, along with the deposit and reporting schedules. The schedule you are assigned depends on how much tax you owe, so this page does not list deadlines. Look up your own schedule rather than assuming one.

State obligations are set by each state. State unemployment insurance has its own rates and taxable wage base. Your state's labor or workforce agency can confirm those figures and tell you whether any state or local income tax withholding applies.

What has to be in place before any payroll tax is owed

The IRS "Hiring Employees" page lists the basics. All U.S. employers must complete Form I-9 for every person they hire to work in the United States. You should ask each new employee for a signed Form W-4 when they start, and it takes effect with their first paycheck. You also need each employee's name and Social Security number for their Form W-2.

A W-4 stays in effect until the employee gives you a new one. When they submit a replacement, the IRS gives you until the start of the first payroll period ending on or after the 30th day after you receive it to apply the new withholding. Someone still has to process the form, and that work belongs in the time cost below.

Before any of this, you need an EIN. ZenBusiness states on its ADP partnership page that you cannot run payroll without one, and the IRS treats the business entity as the employer. The IRS issues EINs directly at no charge through its "Get an Employer Identification Number" page.

ZenBusiness charges $99 for an EIN on its own and includes it in its Pro plan and above. What you pay for there is having the EIN handled as part of forming the business, not the EIN itself.

If the business is not fully set up yet, payroll is not the first step. In Publication 583, the IRS lists opening a business checking account as one of the first things to do, and payroll should run from that account. The order is entity, EIN, bank account, then payroll.

ZenBusiness covers the entity and the EIN and handles payroll through a referral. A ZenBusiness customer requests the connection from the dashboard, and an ADP representative follows up to discuss headcount and pay schedule. ADP then gives a quote, and the customer may be eligible for promotional pricing.

ADP remains a separate service with its own platform, billing, and support. Payroll does not run inside the ZenBusiness dashboard.

Does how you classify workers change the tax bill?

Yes, and it is one of the biggest decisions in the budget. A contractor does not trigger employer payroll taxes, and an employee does. The IRS says classification depends on control, not on the label you use or what a contract says. It weighs three areas: behavioral control, financial control, and the type of relationship.

There is no checklist to tick off. In the IRS's words, "There is no 'magic' or set number of factors that 'makes' the worker an employee or an independent contractor and no one factor stands alone in making this determination."

Getting it wrong is expensive. The IRS warns that an employer who treats an employee as an independent contractor without a reasonable basis "may be held liable for employment taxes for that worker." If you are unsure, you can file Form SS-8 to ask the IRS for a determination, but the IRS notes that "it may take at least six months to receive a determination on your filing."

If you own an S corporation, does your own salary count?

If you run an S corporation and work in the business, your own pay belongs in the payroll budget. The IRS requires an S corporation to pay a shareholder-employee reasonable compensation for their services before it makes non-wage distributions. That wage carries the same employer payroll taxes as any other employee's.

The IRS also has the authority to reclassify distributions as wages, which brings back the payroll taxes an owner may have hoped to avoid. If this applies to you, budget for a reasonable salary for yourself, plus the employer taxes on it, from the first year.

What does payroll software cost on top of the taxes?

The software fee is the most predictable line in the budget, because most providers publish a monthly base fee plus a charge per person. The table lists providers in alphabetical order, not in order of preference, with prices as of October 6, 2026. The three-person column applies each provider's published formula to three people.

State filing fees on a formation plan are set by the state and are not part of the service price, so budget them as a separate line. Before you compare, check each provider's page for what each tier includes and who counts toward the per-person charge.

If the only goal is the smallest monthly software bill, Patriot Software's Basic Payroll is the cheapest published option here. ZenBusiness answers a different need: an owner setting up the business and payroll at the same time who wants formation, the registered agent, the EIN, bookkeeping, and the website in one place, with payroll handled by ADP. For a first employer without an EIN yet, that is the honest recommendation.

What does running payroll cost in time?

The time cost depends mostly on how often you run payroll, and state law decides that. The U.S. Department of Labor's summary of state payday requirements shows how widely the rules vary.

California requires pay at least twice per calendar month on days set in advance. Colorado requires monthly pay. Connecticut requires weekly pay unless the labor commissioner approves a longer interval. The Department of Labor says to check with your state labor office for official information.

That is the difference between 12, 24, and 52 payroll runs a year. Each run means collecting hours, checking changes such as a new W-4, approving the run, and confirming the tax deposits.

Recordkeeping is the other recurring time cost. Under the Department of Labor's Fact Sheet #21, payroll records required by the Fair Labor Standards Act must be kept for three years. The records your wage calculations are based on, including time cards and wage rate tables, must be kept for two years. Someone has to make sure those records stay complete, including when you switch providers.

What state costs belong in the budget?

Three state items belong in the budget: state unemployment insurance tax at the rate your state assigns, any state or local income tax withholding that applies where you operate, and workers' compensation insurance.

Workers' compensation is set by state law, and the rules differ sharply from state to state. This page does not state a rule for any state. Check with your state's workers' compensation agency before your first hire.

How to build the payroll budget, line by line

A payroll budget has six lines, and only the first one is wages. Fill in the rest from current sources rather than from memory.

1. Gross wages for each employee, including an S corporation owner's own reasonable salary if that applies.
2. The employer share of Social Security and Medicare, using the current IRS rates and wage base.
3. FUTA, using the current IRS figures.
4. State unemployment insurance tax at your assigned rate, plus workers' compensation coverage as your state requires.
5. The software fee: the base fee plus the per-person charge times your headcount, at the ongoing price rather than a promotional one.
6. Time: the number of payroll runs your state requires, times the time each run takes you or the fee you pay someone else to do it.

Refresh lines 2 through 4 once a year with the current IRS and state figures. Update line 5 whenever your headcount changes, because the per-person charge grows with it. Update line 6 if you move into a state with a different pay frequency rule.

This article is general information, not legal, tax, or accounting advice, and payroll requirements vary by state and change over time.