How to set up payroll system on FreshBooks

intermediate 8 min read Updated 2026-03-18

Quick Answer

Set up payroll in FreshBooks by accessing the Payroll section, adding employee information, configuring tax settings, and setting up payment schedules. The system automates tax calculations and direct deposits once properly configured.

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Prerequisites

Active FreshBooks account with admin privileges
Employee information including addresses and tax details
Business tax identification numbers and payroll tax registrations
Bank account information for payroll processing

Step-by-Step Instructions

Access FreshBooks Payroll

Log into your FreshBooks account and navigate to the Payroll tab in the main menu. If you don't see this option, click on Add-ons and subscribe to the FreshBooks Payroll service. Complete the initial setup wizard by providing your business information and tax details.

Payroll is an add-on service that requires a separate subscription beyond your regular FreshBooks plan.

Configure Company Payroll Settings

Click on Settings within the Payroll section. Enter your company's Federal EIN, state tax ID numbers, and unemployment insurance details. Set your Pay Schedule (weekly, bi-weekly, semi-monthly, or monthly) and configure your Payroll Calendar with specific pay dates and cutoff periods.

Ensure all tax registration numbers are current and active to avoid compliance issues.

Add Employee Information

Navigate to Employees and click Add Employee. Enter each employee's personal information including full name, address, Social Security number, and hire date. Complete the Tax Information section with W-4 details, state withholdings, and any additional deductions. Set their Pay Type as salary or hourly and enter the compensation amount.

Have employees fill out their W-4 and direct deposit forms before entering their information to ensure accuracy.

Set Up Direct Deposit

In the Banking section under Payroll Settings, add your business bank account by entering the Routing Number and Account Number. For each employee, collect their direct deposit information and enter their bank details in their employee profile under Direct Deposit settings.

Run a test payroll with small amounts to verify all bank account information is correct before processing full payroll.

Configure Deductions and Benefits

Access Deductions & Benefits from the Payroll menu. Set up common deductions like health insurance premiums, retirement contributions, or garnishments. Click Add Deduction and specify whether it's pre-tax or post-tax. Assign relevant deductions to specific employees in their individual profiles.

Consult with your accountant or HR advisor to ensure deductions are configured correctly for tax purposes.

Review Tax Settings and Compliance

Navigate to Tax Settings and verify all federal, state, and local tax configurations. Ensure Automatic Tax Filing is enabled if you want FreshBooks to handle tax deposits and filings. Review the Tax Liability section to confirm all applicable taxes are being calculated correctly.

Tax laws vary by location, so double-check that all local taxes and requirements are properly configured.

Run a Test Payroll

Before going live, create a Test Payroll by clicking Run Payroll and selecting a small group of employees or minimal hours. Review the payroll preview carefully, checking gross pay, deductions, taxes, and net pay calculations. If everything looks correct, you can Process Payroll to finalize the test run.

Always run a test with actual employee data but minimal amounts to catch any configuration errors before processing a full payroll.

Schedule Regular Payroll Processing

Set up Automatic Payroll by going to Settings and enabling Auto-Run Payroll based on your pay schedule. Configure Payroll Reminders to alert you before each payroll deadline. Establish a routine for reviewing and approving each payroll before it processes automatically.

Even with automation enabled, always review each payroll run for accuracy before final processing.

Common Issues & Troubleshooting

Employee tax calculations appear incorrect

Verify the employee's W-4 information is entered correctly and check that their pay frequency matches your payroll schedule. Navigate to their employee profile and update the Tax Information section with current withholding details.

Direct deposit failures or bank errors

Confirm all bank routing and account numbers are correct in both company and employee banking settings. Contact your bank to ensure the account is approved for ACH transactions and verify there are sufficient funds for payroll processing.

Missing state or local taxes

Go to Tax Settings and manually add any missing tax jurisdictions by clicking Add Tax. Ensure your business address is correct as FreshBooks uses this to determine applicable taxes. Contact FreshBooks support if specific local taxes aren't available.

Payroll reports showing discrepancies

Run the Payroll Summary Report and compare it with your general ledger entries. Check that all Chart of Accounts mappings are correct in the payroll settings. Verify that deductions and employer contributions are being recorded to the proper accounts.

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