Hiring employees in Arizona means more than issuing paychecks—you also take on payroll responsibilities. Small business owners must register for tax accounts, withhold the right amounts, and file reports with state and federal agencies. Missing a step can lead to costly penalties.
This guide explains how to set up payroll for small businesses in Arizona, from getting an EIN to registering with the Arizona Department of Revenue and Department of Economic Security, collecting employee forms, and choosing the right payroll method. Follow these steps to launch payroll smoothly and keep your business compliant in 2025.
Why payroll setup matters for Arizona small businesses
Hiring your first employee in Arizona means more than just issuing paychecks. You’re also responsible for withholding state and federal taxes, paying unemployment insurance, filing reports, and keeping accurate payroll records.
Getting payroll right from the start protects your business from penalties and helps you stay compliant with both the Arizona Department of Revenue (ADOR) and the Department of Economic Security (DES). Here’s a step-by-step guide to set up payroll in Arizona.
Step 1 – Get a Federal Employer Identification Number (EIN)
Before you can process payroll, you need an Employer Identification Number (EIN) from the IRS.
- Apply online at IRS.gov.
- This number is required to pay employees, file taxes, and report wages.
Step 2 – Register with Arizona State Agencies
Arizona Department of Revenue (ADOR) – Withholding Tax
- Register at AZTaxes.gov.
- You’ll receive a withholding account number to deduct Arizona income tax from employee wages.
- Employers must file Form A1-QRT (Quarterly Return) and Form A1-R or A1-APR (Annual Reconciliation).
Arizona Department of Economic Security (DES) – Unemployment Insurance (UI)
- Register with DES to report and pay unemployment insurance tax.
- New employer rate: 2% on the first $8,000 of wages per employee.
- File Form UC-018 (Quarterly Wage Report) online or by mail.
For planning business expenses, you may also want to check our property tax calculator to estimate fixed costs alongside payroll obligations.
Step 3 – Collect New Employee Forms
Every new employee must complete both federal and Arizona tax forms:
- Federal Form W-4 (withholding elections).
- Form I-9 (employment eligibility verification).
- Arizona Form A-4 (state withholding). If not submitted within five days, you must withhold at the default 2% rate.
Step 4 – Choose a Payroll Method
Small business owners in Arizona can manage payroll in three main ways:
| Method | Pros | Cons |
|---|---|---|
| DIY (manual) | Low cost, full control | Time-consuming, high error risk |
| Payroll software | Automates taxes, reminders, reporting | Subscription fees |
| Outsourced payroll | Saves time, ensures compliance | Higher ongoing cost |
If you’re worried about balancing payroll with other loan or cash flow needs, try using a repayment schedule calculator to model out your commitments.
Step 5 – Set a Pay Schedule and Run Payroll
- Arizona law requires regular paydays (at least twice a month unless you have approval for monthly).
- Each pay cycle, calculate gross pay → subtract federal and state taxes → subtract benefits/deductions.
- Deposit employer contributions (Social Security, Medicare, UI).
Step 6 – File Reports and Pay Taxes
- Arizona Withholding: Quarterly Form A1-QRT, Annual Form A1-R.
- Arizona UI Tax: Quarterly Form UC-018.
- Federal: Form 941 (quarterly), Form 940 (annual FUTA), W-2/W-3 by January 31.
See our guide on Arizona payroll tax deadlines for employers in 2025 for specific dates.
Step 7 – Maintain Payroll Records
Arizona employers must keep payroll records for at least four years, including:
- Employee names, addresses, Social Security numbers.
- Wages, tips, hours worked.
- Taxes withheld and paid.
- Copies of employee tax forms (W-4, A-4, I-9, W-2).
For longer-term planning, business owners sometimes also explore early debt reduction. Our early payoff calculator can help you see how loan decisions fit alongside payroll responsibilities.
Payroll setup flow at a glance
EIN → ADOR registration → DES registration → Employee forms → Payroll method → Pay schedule → Filing and recordkeeping
FAQs: Setting up payroll in Arizona
What do I need first to set up payroll in Arizona?
An EIN from the IRS, then registration with ADOR and DES.
What is the Arizona new employer unemployment tax rate?
2% on the first $8,000 of wages per employee.
Which forms do new Arizona employees need to fill out?
W-4, I-9, and Arizona Form A-4
Can I run payroll without software?
Yes, but manual payroll is time-consuming and error-prone. Most small businesses use payroll software or outsource.
How often must I pay employees in Arizona?
At least twice a month, unless you have permission for monthly payroll.
Harry is the creator of ArizonaPaycheckCalculator.com, a trusted resource for accurate and easy-to-use payroll and tax calculators. With a focus on clarity and precision, Harry helps Arizona residents understand their take-home pay, deductions, and withholdings. Dedicated to making complex calculations simple, he combines financial knowledge with user-friendly tools to save users time and confusion.