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Payroll in California
California has some of the most complex payroll and labor laws in the country. These laws apply to businesses registered in California or California employers who have at least one employee.
California employers have a lot to consider when paying their teams. From compensation to tax withholdings and employee benefits, here are a few things to consider along the way.
The California Division of Labor Standards Enforcement (DLSE) enforces California’s wage orders. These wage orders include the minimum wage for hourly workers, which can be tricky for several reasons. Here are a few things you need to know:
- As of January 2020, the minimum wage for employers with 25 employees or fewer is $12 per hour. The minimum wage for employers with 26 employees or more is $13 per hour.
- California is in the process of increasing its minimum wage. By January 2023, California’s minimum wage will be $15 per hour for all businesses.
- Some employees are exempt from the minimum wage, including outside salespeople, direct family members of business owners, and some apprentices or student employees.
- The DLSE also makes an exception for employees with disabilities. Their employers may request a license from the DLSE authorizing employment at a lower wage than the minimum wage.
- One notable non-exception is waitstaff. In California, restaurants must pay waitstaff the minimum wage. Tips may not apply as credits toward that amount.
Income tax withholding
All California employers must submit employment tax returns, wage reports, and payroll tax deposits to the Employment Development Department (EDD). They must also withhold state and federal personal income taxes (PIT) from employee wages. These withholding rules apply to all residential and non-residential employees. Though, for non-residents, California PIT only applies to the days they work in California. Otherwise, there are two exceptions:
- Businesses need not withhold California PIT for independent contractors but must report certain information to the EDD.
- Nonresident military spouses may not have to pay California PIT if they file a form DE4.
California has a few required employee benefits and some notable exceptions.
Sick time: Most employees, including temporary or part-time employees, are entitled to paid sick leave. Sick leave laws include employees who live out of state but work in California at least 30 days out of the year.
Vacation time: California employers are not required to provide either paid or unpaid vacation time. However, if a business offers paid vacation time, any earned hours are considered wages and must be paid when an employee leaves.
Time off to vote: Employees must be allowed to vote in state elections. If their shift makes it difficult to vote, the employer must give them up to 2 hours of paid time off to vote.
Disability insurance: Pregnant employees can receive up to four weeks of disability insurance (DI) benefits for a normal pregnancy before the expected due date. They can also receive up to eight weeks of DI benefits after delivery to recover from childbirth.
Paid family leave: After DI benefits are complete, a parent may receive up to eight weeks of PTO, using California’s Paid Family Leave (PFL) bonding benefits. PFL benefits apply to a child’s birth, adoption, or foster care placement. Employees may also take it to care for a seriously ill family member.
Family and Medical Leave Act: The Family and Medical Leave Act (FMLA) and the California Family Rights Act (CFRA) grant employees unpaid time off to care for themselves or others. Employers may require employees to take FMLA or CFRA leave at the same time as PFL.
Workers’ compensation: All California employers must have workers’ comp insurance.
Full payroll packages
There are three QuickBooks Online Payroll products: Core, Premium, and Elite. There’s a solution for every small to mid-sized business. Check out a few of our favorite features within each product, designed to help make your payroll fully compliant with California state laws.
- Federal and state payroll taxes—including year-end filings—are calculated, filed, and paid automatically.**
- Set up automatic payroll for salaried employees using direct deposit.**
- Your time tracking data flows into your account automatically. You can approve timesheets, pay your team, and create invoices right from your phone.**
- Free up your cash—automatically pay for workers’ comp when you run payroll. Our partner, AP Intego, can help you find the best policy for your business.**
- We’ll pay up to $25,000 if you receive a payroll tax penalty. It doesn’t matter who made the error. We’ll make it right.
- Pay your team when you want with same-day direct deposit.** Funds are withdrawn the day your employees get paid.
The California Department of Industrial Relations (DIR) has various resources for employers, from information about the minimum wage to business licenses, permits, and registrations. Here are some of the divisions or groups you can find on the DIR site and why they’re important.
- The California Division of Labor Standards Enforcement, also known as the California Labor Commissioner’s Office, enforces Californa’s wage orders.
- The Division of Occupational Safety and Health, also known as Cal/OSHA, protects and improves California workers’ health and safety.
The Employment Development Department is also a great hub of employer resources, with lots of information on payroll taxes, insurance claims, and withholdings. The EDD has several related programs that might also be helpful, including labor market information and state disability insurance.
The U.S. Department of Labor will be most applicable for employers looking for federal information and assistance. Notable resources include:
The Small Business Administration (SBA) also has resources for new and existing businesses. Small Business Development Centers are located around the country. In 2020, the SBA was well known for its coronavirus relief programs, which provided loans to struggling businesses.
QuickBooks Payroll resources
The QuickBooks Resource Center has several resources geared toward answering small business owners’ payroll questions. Additional resources include: