Tennessee Payroll: Employer Tax and Software Guide

Tennessee is the state employers assume is free. There is no income tax on wages, so there is no withholding table to apply, no state W-4 to collect, no reciprocity agreement with a neighbor to track, and no annual state reconciliation to file. That part is entirely true, and it removes real work from the job.

What it does not remove is everything else. Federal withholding, Social Security, Medicare and federal unemployment all still apply. The state still runs an unemployment insurance program with its own registration, its own quarterly filings, and a rate that changes on a July fiscal year rather than in January. There is a pay frequency statute with fixed calendar deadlines, a final paycheck rule that reads differently from the one in most states, a workers compensation threshold that fires at five employees, and an E-Verify mandate that fires at thirty-five.

None of this is hard. The failure mode in Tennessee is not complexity, it is inattention: an employer who concludes that a no-income-tax state has no state payroll obligations and finds out otherwise from a notice. This guide covers what Tennessee requires as of August 2026, what state registration does not cover, and how 10 payroll providers price the work at 10, 25, and 50 employees.

What Tennessee requires from employers

Tennessee imposes exactly one state payroll tax on employers: unemployment insurance premiums. Everything else the state asks for is a rule about timing, coverage, or records rather than a tax, which is a genuinely short list by American standards.

No income tax on wages, and what that does not remove

Tennessee does not tax salaries and wages, and no city or county in the state levies a local income tax on top. There is no state withholding calculation to run, no state certificate to collect at hire, no deposit schedule tied to a withholding threshold, and no annual state reconciliation filed alongside W-2s.

The state did once tax investment income. According to the Tennessee Department of Revenue, the Hall income tax applied only to interest from bonds and notes and dividends from stock, and it was repealed for tax periods that begin on January 1, 2021 or later, with the department instructing taxpayers not to file a return for any year starting on or after that date. Nothing about it ever touched payroll, and nothing about it applies now.

Unemployment insurance premiums

Unemployment insurance is an employer-only cost in Tennessee, with no employee deduction. According to the Tennessee Department of Labor and Workforce Development, the taxable wage base is $7,000 for 2026, which is where it has sat every year since 2018 and which is the lowest base federal law allows a state to use.

Tennessee is one of 31 states that set employer rates with a reserve-ratio formula. The reserve ratio is the balance in the employer account, meaning premiums paid less benefits charged across all liable years, divided by average taxable payroll for the three most recent years. That ratio is recalculated annually and converted to a rate using whichever of six premium rate charts is in force. A higher reserve ratio produces a lower rate.

Two mechanics decide which table applies and when a rate changes. The trust fund balance on June 30 and December 31 determines which of the six charts governs the following six-month period, under Tennessee Code Annotated 50-7-403. Separately, an employer reserve ratio takes effect for a four-quarter tax year beginning each July 1. The state has used Premium Rate Table 6, the most favorable of the six, continuously since July 2015, including both halves of 2026.

New employers pay 2.7 percent under the same statute, for each twelve-month period beginning July 1. The one exception applies where the employer sits in a two-digit North American Industry Classification System sector whose combined reserve ratio is below zero, in which case the sector ratio is matched to the table in force instead. The new employer rate holds until the account has been chargeable with benefits and subject to premiums throughout a thirty-six consecutive month period ending on the computation date.

Liability itself starts early. An employing unit is liable if it is liable under the Federal Unemployment Tax Act and has at least one employee in Tennessee, if it pays $1,500 or more in gross wages in a calendar quarter, or if it has at least one employee during 20 different weeks in the current or preceding calendar year. Domestic employment triggers at $1,000 in a quarter, agricultural employment at 10 employees for 20 weeks or $20,000 in a quarter, and a 501(c)(3) nonprofit at four or more paid employees in each of 20 weeks.

No state minimum wage

Tennessee has never enacted a minimum wage statute, so the federal floor of $7.25 per hour under the Fair Labor Standards Act applies to covered employees, along with the federal $2.13 tipped cash wage and the $5.12 maximum tip credit. Because the floor is federal rather than state, it is not indexed and has no scheduled increase.

State law also preempts local wage ordinances, so no Tennessee city or county can set its own rate. One wage floor applies from Memphis to Bristol. For hospitality employers that shifts the entire question onto the tip credit mechanics: whether tips plus cash wage reach $7.25 in every workweek, how tip pools are handled, and how time spent on non-tipped duties is tracked.

Pay frequency and the calendar deadlines

Private employers with five or more employees must establish and maintain regular paydays, and under Tennessee Code Annotated 50-2-103 all wages in private employment are due and payable not less frequently than once per month. The statute then sets fixed calendar deadlines rather than leaving the schedule to the employer.

The final paycheck rule that runs both ways

Any employee who leaves or is discharged must be paid in full no later than the next regular payday following separation, or twenty-one days after the date of discharge or voluntary leaving, whichever occurs last. The state says explicitly that there is no exemption under the law.

Two details separate this from most states. First, the deadline is identical for a quit and a firing, where most states run a shorter clock on involuntary separations. Second, the operative word is last, not first, so an employee who resigns two days before payday is not owed on that payday. Accrued but unused paid time off is not owed at all unless an employer policy or labor agreement specifically requires it, since Tennessee does not regulate fringe benefits.

Registration and new hire reporting

There is no state withholding account to open, so registration means one thing: an unemployment insurance account with the Department of Labor and Workforce Development, opened through the employer e-Services portal, with quarterly premium and wage reports filed electronically. Franchise and excise tax registration with the Department of Revenue is a business entity matter and does not sit in the payroll run.

New hires and rehires go to the Tennessee New Hire Reporting Program within 20 days, with employers filing magnetically or electronically submitting in two monthly transmissions no more than 16 days apart. The state says no one is exempt from the law, and failing to report an employee can carry a financial penalty.

The local layer that state registration does not cover

Tennessee has no local income tax, no local payroll tax, and no city or county wage ordinance anywhere in the state, so the local layer that dominates Colorado or Ohio payroll simply does not exist here. What does exist are three obligations that sit outside the payroll account entirely, triggered by headcount rather than by geography, and each of them lives in the Tennessee compliance rules rather than in a tax table.

E-Verify from 35 full-time equivalents

Effective January 1, 2023, private employers with 35 or more full-time equivalent employees under the same federal employer identification number must use the federal E-Verify process, according to the employment verification guidance published by the Tennessee Department of Labor and Workforce Development. Employers below the threshold may instead request and retain documents from the authorized identity and employment eligibility list under the Tennessee Lawful Employment Act.

The counting rule is where employers get caught. It counts full-time equivalents under one FEIN, including employees working outside Tennessee, so a Nashville company with people in Georgia and Kentucky counts all of them. Penalties escalate: $500 for the company plus $500 per unverified employee on a first violation, up to $2,500 plus $2,500 per employee for repeat violations, $500 for failing to enroll, and $500 per day for failing to produce evidence of compliance. This runs alongside the federal Form I-9 obligation rather than replacing it.

Workers compensation from the fifth employee, or the first in construction

Non-construction employers with five or more employees must secure workers compensation coverage, either through a licensed carrier or by qualifying as self-insured through the Department of Commerce and Insurance. Construction service providers need coverage at one or more employees unless a specific exemption applies.

The headcount is broader than most employers assume: minors, working family members, and part-time employees all count toward the total. Tennessee also applies a seven-factor test to distinguish employees from contractors, weighing control of the work, the right of termination, the method of payment, the freedom to hire helpers, who furnishes tools and equipment, self-scheduling, and the freedom to serve other businesses. The state notes that issuing a Form 1099 rather than a W-2 does not settle the question.

The professional privilege tax

Tennessee levies a $400 annual professional privilege tax, due June 1, on individuals licensed or registered in the state as an attorney, securities agent, broker-dealer, investment adviser, or lobbyist. Someone registered in more than one covered profession pays once. It is an individual obligation rather than a payroll tax, but law firms and advisory practices commonly pay or reimburse it, and a reimbursement is compensation that has to be handled correctly rather than expensed quietly.

The E-Verify line is the one worth stress-testing, because it counts full-time equivalents under a single FEIN including staff outside the state. A Memphis business with 22 people locally and 15 remote workers elsewhere is over the threshold, and multi-location restaurant and retail groups operating under one FEIN cross it sooner than they expect. Confirm how your employee records compute full-time equivalents before assuming you are under it.

10 payroll providers for Tennessee employers compared

Every provider below files Tennessee unemployment premiums and the quarterly premium and wage report. With no state withholding to calculate, the usual state tax differentiators disappear, and three other axes take over: how the platform handles tipped wages, what a second state costs, and whether it applies the correct pay frequency deadline to your schedule.

OnPay

One plan at $49 per month plus $6 per employee, every feature included, no tiers to climb. Tax filing covers all 50 states with no multi-state surcharge, and year-end W-2 and 1099 filing sits in the base price rather than being billed separately. OnPay also maintains restaurant-specific payroll tooling including tip credit handling and minimum wage shortfall checks, which is the feature that matters most in a state whose wage floor is the federal minimum.

Gusto

The most common first payroll purchase for US small businesses. Tax filing is automatic, the interface is pleasant, and pricing is published. Simple runs $49 per month plus $6 per employee following a base increase in March 2026.

The catch for Tennessee employers is geographic. Simple covers single-state payroll only, and Tennessee borders eight states, more than almost anywhere in the country. A hire in Kentucky, Mississippi, Virginia, or Georgia moves you to Plus at $80 plus $12 per employee, so model that number if a cross-border hire is plausible within a year.

Patriot Software

The cheapest legitimate full-service payroll available. Full Service is $37 per month plus $5 per employee and includes federal, state, and local tax filing plus new hire reporting. Basic is $17 plus $4 if you file taxes yourself, which in Tennessee is a genuinely small job: one quarterly premium and wage report and the federal filings, with no state withholding deposits at all.

That is the strongest argument for the self-filing tier anywhere in the country. It is also the reason to read the trade honestly: you take on the quarterly deadline and the annual rate notice yourself, and a missed quarterly report costs more than the $30 a month the downgrade saves at 10 employees.

Square Payroll

At $35 per month plus $6 per person, Square is priced at the low end of the full-service field and publishes its rates outright, and the plan covers federal and state tax calculations, payments, and filings. For a Nashville bar or a Gatlinburg restaurant already on Square point of sale, tips and timecards flow into payroll with no integration work and no manual tip import, which is the single biggest source of payroll error in Tennessee hospitality.

SurePayroll

Owned by Paychex and aimed at very small employers and household employers. Full Service is $29 per month plus $7 per employee, with a flat $9.99 monthly multi-state fee regardless of how many states are involved. For a Tennessee business with a few people across the Kentucky or Mississippi line, that flat structure beats per-state pricing outright.

QuickBooks Workforce Payroll

Formerly QuickBooks Payroll, now renamed. Core is $50 per month plus $6.50 per employee. The reason to pick it has always been the same: if your books already live in QuickBooks Online, payroll entries reach the general ledger without an export step. Per-employee pricing rose across all tiers on July 1, 2026.

ADP RUN

ADP processes payroll for roughly one in six American workers and has the deepest tax compliance engine in the category. In Tennessee the argument for it is not state complexity, because there is very little. It is what happens when a Tennessee headquarters starts hiring across those eight borders and the multi-state registration problem arrives all at once.

The cost is opacity. ADP does not publish RUN pricing; third-party estimates put Essential near $79 per month plus $4 per employee, but every quote is individual. Contracts typically run a year with automatic renewal and a 30 to 60 day cancellation window.

Paychex Flex

Paychex competes on service rather than software, with a named contact at higher tiers, and unusually among quote-driven vendors it publishes an entry rate: Essentials at $39 per month plus $5 per employee. In Tennessee the service model earns its keep when the July rate notice arrives and nobody in the building is sure what a reserve ratio is.

Paylocity

Paylocity sits between small-business payroll and full HCM, aimed at companies that have outgrown basic payroll but do not want enterprise complexity. It maintains detailed per-state tax resources including Tennessee, and the HR module covers performance, learning, and engagement alongside payroll. Pricing is quote-based and implementation is a project rather than a signup.

Rippling

Rippling sells a unified employee record where payroll, HR, and IT provisioning share one data model. The core platform is $35 per month plus $8 per employee, with payroll as a separate module. Real-world all-in costs land between $25 and $45 per employee per month once you assemble a working configuration.

What each provider actually costs a Tennessee employer

The table below models published rates at three headcounts, plus what happens when a second state enters the picture. That last column carries more weight in Tennessee than in most states, because Tennessee touches eight of them and a single hire in Georgia or Kentucky can reorder the ranking.

Patriot stays cheapest at every headcount, and by 50 employees it undercuts SurePayroll by $92 a month and QuickBooks by $88. Paychex Essentials and Square sit close behind, and Square is the only one of the three that includes multi-state filing rather than charging for it. Gusto Simple is competitive right up until one out-of-state hire forces the Plus tier, at which point a 25-person payroll moves from $199 to $380 per month.

Tennessee is also the state where the software line is the largest controllable number in the whole payroll stack. A 25-person employer at the new employer unemployment rate pays roughly $4,725 a year in state premiums, all of it capped at $7,000 per person, with no paid leave premium, no state disability contribution, and no city payroll tax underneath it. Compared to states that layer three or four statutory programs on top, the subscription is a real share of the total rather than a rounding error.

Choosing a payroll provider for Tennessee

Four questions separate providers that will work here from providers that will quietly generate a problem. None of them is about state withholding, because there is none.

One item sits outside the payroll engine entirely. Every Tennessee new hire needs a federal I-9 and a federal W-4, a direct deposit authorization, a new hire report filed within 20 days, and, at 35 full-time equivalents, an E-Verify case opened on time. There is no state tax form in that list, which is exactly why the list gets treated as optional.

Before you choose

FirstHR does not process payroll, file payroll taxes, move money, or administer benefits. Every provider above does something we do not, and if running payroll is the problem in front of you, one of them is the answer, not us.

What we handle is the layer that feeds payroll: onboarding workflows, e-signatures on I-9s and offer letters, employee records, and HR document management for small US teams at flat, predictable pricing. Tennessee sharpens the point, because with no state withholding form to collect, the state obligations that remain are almost entirely document obligations. If the recurring problem is that the I-9 was never countersigned, the direct deposit form is unsigned, nobody is sure whether the 20-day new hire report went out, and no one can find the verification documents an auditor is asking for, that is a document collection failure rather than a payroll processing failure, and it is the kind of gap we built for.

Frequently Asked Questions

Does Tennessee have a state income tax on wages?

No, and no Tennessee city or county levies a local income tax either. There is no state withholding, no state W-4, and no state reconciliation. The Hall income tax on interest and dividends was repealed for tax periods beginning on or after January 1, 2021, and never applied to wages in the first place.

What is the Tennessee unemployment insurance wage base?

$7,000 per employee, unchanged every year since 2018 and the lowest base federal law allows. It matches the federal unemployment tax base exactly, so both ceilings stop at the same dollar rather than requiring a payroll system to track two separate caps.

What is the Tennessee new employer unemployment rate?

2.7 percent for each twelve-month period beginning July 1, under Tennessee Code Annotated 50-7-403. The exception applies where the employer sits in a two-digit NAICS sector with a reserve ratio below zero, in which case the sector ratio is matched to the table in force. The rate holds until the account has been chargeable for 36 consecutive months.

What is the range of Tennessee unemployment premium rates?

Under the premium rate table in force, positive-balance employers pay from 0.01 percent at a reserve ratio of 20.0 percent or higher up to 2.30 percent at the bottom of the positive band. Negative-balance employers pay 5.00 to 10.00 percent. That table has applied continuously since July 2015.

Does Tennessee have a state minimum wage?

No. The federal $7.25 applies, with the federal $2.13 tipped cash wage and $5.12 maximum tip credit. It is not indexed and has no scheduled increase, and state law preempts local wage ordinances, so no Tennessee city or county can set a higher rate.

How often must a Tennessee employer pay employees?

At least once per month. Private employers with five or more employees must maintain regular paydays. Monthly payers owe wages earned before the first of a month by the fifth of the next. Employers paying two or more times per month owe wages earned before the first by the twentieth of the following month, and wages earned before the sixteenth by the fifth of the succeeding month.

When is a final paycheck due in Tennessee?

No later than the next regular payday following separation or 21 days after the date of discharge or voluntary leaving, whichever occurs last. The same deadline applies to a quit and a firing, which is unusual, and the state notes there is no exemption under the law.

Does Tennessee require employers to pay out unused vacation?

No, unless the employer policy or a labor agreement specifically requires it. Tennessee does not regulate fringe benefits, a category the state defines to include paid time off, vacation, sick pay, holiday pay, severance, and health insurance, so the written policy controls the answer.

Which Tennessee employers must use E-Verify?

Private employers with 35 or more full-time equivalent employees under the same federal employer identification number, counting staff working inside and outside the state. Smaller employers may instead retain documents from the authorized list under the Tennessee Lawful Employment Act. Penalties start at $500 for the company plus $500 per unverified employee.

When does a Tennessee employer need workers compensation insurance?

At five or more employees for non-construction businesses, and at one or more employees for construction service providers unless specifically exempted. Minors, working family members, and part-time employees all count toward the headcount, and a seven-factor test rather than a Form 1099 decides who counts as an employee.

How long does a Tennessee employer have to report a new hire?

Twenty days from the date of hire, to the Tennessee New Hire Reporting Program. Employers reporting magnetically or electronically submit in two monthly transmissions no more than 16 days apart. The state says no one is exempt from the law, and failing to report an employee can carry a financial penalty.

What is the Tennessee professional privilege tax?

A $400 annual tax due June 1 on individuals licensed or registered in Tennessee as an attorney, securities agent, broker-dealer, investment adviser, or lobbyist. It is an individual obligation rather than a payroll tax, though employers who reimburse it need to treat the reimbursement as compensation.

Do Tennessee cities charge a local payroll or income tax?

No. There is no local income tax and no local payroll tax anywhere in Tennessee, and state law preempts local wage and leave mandates. Counties and municipalities do levy a business tax on gross receipts, but that is a tax on revenue rather than on wages and it does not run through payroll.

How much does payroll software cost for a Tennessee small business?

At 10 employees, published July 2026 rates run roughly $87 for Patriot Full Service, $89 for Paychex Essentials, $95 for Square, $99 for SurePayroll, $109 for OnPay or Gusto Simple, and $115 for QuickBooks Core. At 50 employees the same plans land between $287 and $379.