California HR Compliance: Complete Employer Guide

California has the most complex employment law framework of any state in the US. It operates under different rules than federal law in almost every category: overtime, meal breaks, sick leave, termination pay, background checks, non-competes, and worker classification. For a small business owner with no HR background, the gap between what you think the rules are and what the rules actually are can cost you tens of thousands of dollars in penalties, lawsuits, and back pay.

This guide covers everything a California employer needs to know: the documents required at hire, how wages and overtime actually work, what leave you must provide, how to run a compliant termination, and what has changed in the last two years. I built FirstHR partly because I watched too many small business owners discover California compliance the hard way. The goal here is to make sure that does not happen to you.

California Employment Law Fundamentals Every Employer Must Know

Before getting into the specifics of hiring, wages, and leave, three foundational legal concepts shape almost every employment decision you will make in California. Understanding these upfront prevents the most expensive mistakes.

At-Will Employment and Its Four Exceptions

California Labor Code Section 2922 establishes at-will employment as the default: either party can end the employment relationship at any time, for any reason, without notice. Most employers know this part.

What many do not know is that California recognizes four exceptions to at-will employment that exist nowhere in most other states:

• Implied contract: If your handbook, offer letter, or verbal statements suggest job security, a court may find an implied promise of continued employment. This is why vague language like "we only let people go for cause" in a handbook is dangerous.
• Public policy exception: An employee cannot be fired for reasons that violate public policy, such as refusing to commit an illegal act or filing a workers' comp claim.
• Implied covenant of good faith and fair dealing: Recognized in California and roughly 11 other states, this doctrine can come into play when an employer acts in bad faith, such as terminating an employee right before they earn a large commission. The landmark California case defining the limits of this exception is Guz v. Bechtel National Inc. (2000).
• Fraud: Misrepresentations made during hiring (for example, promises about job security or compensation that were never honored) can constitute fraudulent inducement.

The ABC Test: How California Classifies Workers

Under AB 5 (Labor Code §§ 2775-2787), California presumes every worker is an employee. The burden is on you, the hiring entity, to prove a worker is an independent contractor. To do that, you must satisfy all three prongs of the ABC test.

Prong B is where most small businesses fail. When you do bring on employees correctly, the onboarding best practices guide covers how to structure their first weeks for maximum retention. If someone is doing core work for your business (a marketing agency hiring a graphic designer, a restaurant hiring a cook, a law firm hiring a paralegal), that worker is almost certainly an employee under California law, regardless of what your contract says.

Some industries have specific exemptions or use an alternative Borello test: licensed professionals such as doctors, dentists, insurance agents, real estate agents, certain hairstylists, and others named in AB 2257. Proposition 22 (2020) created a separate category for app-based drivers (rideshare and delivery platforms) with limited benefits. Note that consultants who advise a business to misclassify workers face joint liability under Labor Code § 2753. If you do work with independent contractors who pass the ABC test, the contractor onboarding guide covers the W-9, ICA, and 1099-NEC requirements. If you hire in these categories, verify current exemption status at labor.ca.gov.

California WARN Act: 75 Employees, Not 100

The federal WARN Act requires 60 days advance notice before a plant closing or mass layoff, but only applies to employers with 100 or more employees. California's version (Labor Code §§ 1400-1408) applies at a lower threshold of 75 employees, counting both full-time and part-time workers.

A mass layoff under California WARN is the layoff of 50 or more employees within any 30-day period. When workforce changes involve departing employees, having a structured offboarding process protects you legally and helps with knowledge transfer. A plant closing triggers the notice requirement regardless of the number of workers affected. Penalties for non-compliance run up to $500 per day per affected employee, plus back pay for up to 60 days.

In October 2025, California updated its WARN notice content requirements. Make sure any layoff planning involves an employment attorney review to catch current notice language requirements. More information is available at the EDD WARN page.

Hiring and Onboarding: Required Documents and Reporting

California requires more documentation at hire than any other state. For a broader guide to onboarding compliance requirements across all 50 states, see the onboarding compliance guide. In addition to the two federal forms (I-9 and W-4), you must provide seven California-specific notices and complete new hire reporting with the state within 20 days. Missing any of these creates compliance exposure from day one.

Required Documents at Hire

The Notice to Employee (LC § 2810.5) deserves special attention. It is required for every non-exempt employee and must include 10 specific pieces of information: the employee's pay rate and basis (hourly, salary, piece rate), the designated paydays, the employer's legal name and main office address and phone number, the name and address of the workers' compensation carrier, information about the employee's right to accrue sick leave, and information about emergency contacts. A template is available free from the DIR at dir.ca.gov. For a complete breakdown of every federal and state tax form new employees must complete, see the tax forms for new employees guide. If any of the information changes (new pay rate, new WC carrier), you must notify the employee in writing within 7 calendar days.

For a complete onboarding paperwork walkthrough that ties these California requirements to your broader new hire process, see the onboarding documents checklist.

New Hire Reporting: 20-Day Deadline

Every California employer must report new hires and rehires (any employee returning after 60 or more days off payroll) to the EDD within 20 calendar days of their first day of work. This is not optional and applies regardless of employer size.

You report using Form DE 34, which can be submitted online through the EDD e-Services portal, by fax, or by mail. The required information includes: employee's name, Social Security number, address, start date, and your EDD account number and federal employer identification number (FEIN).

Penalties are modest but cumulative: $24 per late report, and $490 per report if the failure was due to a conspiracy between the employer and employee. For a California-specific walkthrough of all required new hire paperwork with deadlines, see the California new hire paperwork checklist. The bigger risk is that unreported hires can disqualify you from certain state programs and create audit exposure. For state-by-state new hire reporting requirements beyond California, see the new hire reporting guide.

E-Verify, Background Checks, and Drug Testing

E-Verify use is voluntary for private California employers under AB 1236 (2011). In fact, California law prohibits local governments from mandating E-Verify participation for private companies. Federal contractors must use E-Verify regardless of state law.

Background checks are governed by the Fair Chance Act (AB 1008, Government Code § 12952), which applies to employers with 5 or more employees. The key rule: you cannot ask about criminal history on a job application or during an interview. You may only conduct a background check after you have made a conditional offer of employment.

After a conditional offer, if a background check reveals criminal history, you must follow a five-step process: conduct an individualized assessment of whether the conviction is directly related to the job, send a pre-adverse action notice with a copy of the background report and your assessment, give the candidate at least 5 business days to respond, reassess their application in light of any evidence they provide, and only then make a final decision. Records you may never consider include arrests without conviction, participation in diversion programs, juvenile records, and sealed or expunged records.

California drug testing rules changed significantly with AB 2188 (effective January 1, 2024). Employers may not discriminate against job applicants or employees for off-duty cannabis use. Hair follicle tests and urine tests for cannabis are now prohibited because they detect inactive metabolites from prior off-duty use, not current impairment. Saliva tests detecting active THC remain permissible. Pre-employment testing for cannabis is generally unlawful. You can still test for on-duty impairment and maintain drug-free workplace policies for safety-sensitive roles, but the framework has shifted meaningfully. Exceptions apply to construction workers, DOT-regulated positions, and roles requiring federal security clearances.

Wages, Hours, and Overtime

California's wage and hour rules are significantly stricter than federal law in almost every dimension. Violations are among the most common source of employment litigation in the state, and the penalties compound quickly because they apply per pay period, per employee.

Minimum Wage Rates for 2025-2026

The statewide minimum wage is $16.50 per hour as of January 1, 2025, rising to $16.90 per hour on January 1, 2026. But this is the floor, not the full picture:

• Fast food workers (covered restaurants with 60+ national locations): $20.00/hour (AB 1228, effective April 1, 2024)
• Healthcare workers (SB 525): ranging from $18 to $24 per hour depending on facility type, with phase-in dates through October 2024 and beyond
• Local ordinances: San Francisco ($19.18/hour as of July 1, 2025), West Hollywood ($19.65/hour), Emeryville ($19.90/hour as of July 1, 2025), Los Angeles ($17.87/hour as of July 1, 2025), and numerous other cities and counties exceed the state minimum

Tips and gratuities do not count toward the minimum wage in California. Unlike some states, California has no tip credit that reduces the employer's wage obligation. Always apply the highest rate: state, local, or industry-specific. Check dir.ca.gov/dlse/minimum_wage.htm for the current breakdown of city and county rates.

Overtime: California vs. Federal

California's overtime rules differ from federal law in ways that consistently surprise employers coming from other states. The differences are not minor.

The practical implication: a California employee who works 10-hour shifts four days a week (40 hours total) is owed 8 hours of daily overtime (2 hours per day at 1.5x) even though they have not exceeded 40 weekly hours. Federal law would owe zero overtime for that same schedule.

The exempt salary threshold in California is also much higher than the federal minimum. As of 2025, California exempt employees must earn at least $1,320 per week ($68,640 annualized), compared to the federal threshold of $684 per week. If an employee earns below the California threshold, they are non-exempt regardless of their job title or duties, which means all overtime rules apply.

Pay Stubs: 9 Required Items

California Labor Code § 226 requires itemized wage statements to include nine specific pieces of information. Missing even one item on any pay stub triggers automatic penalties.

Penalties run $50 for the initial violation and $100 per employee per pay period for subsequent violations, up to $4,000 per employee. California also requires pay stubs to show the employee's accrued paid sick leave balance. This is one of the highest-frequency penalty sources in California employment audits.

Pay Frequency Requirements

California law requires most wages to be paid at least twice per month on designated paydays. Overtime wages earned in the first half of the month (days 1-15) must be paid by the 26th of that month. Overtime earned in the second half (days 16 through the end of month) must be paid by the 10th of the following month. Executive, administrative, and professional employees may be paid once per month.

Direct Deposit and Alternative Workweek Schedules

California Labor Code § 213(d) prohibits employers from requiring direct deposit as a condition of employment. You may offer direct deposit and most employees will choose it, but you must also make pay available by check or cash upon request. An employee can revoke their direct deposit authorization at any time.

An Alternative Workweek Schedule (AWS) under Labor Code § 511 allows employers to schedule up to 10-hour workdays without triggering daily overtime, provided the schedule is approved by at least two-thirds of affected employees in a secret ballot election. The election results must be filed with the DIR. Hours beyond the scheduled AWS shift (for example, an 11th hour on a 10-hour scheduled day) still trigger daily overtime at 1.5x. AWS schedules are a legitimate tool for businesses with naturally longer workdays, but the election and filing requirements are strict. Skipping them means the schedule is void and all daily overtime applies retroactively.

Meal and Rest Break Rules

California's meal and rest break requirements are stricter than federal law, more specific in their timing, and carry automatic financial penalties for violations. There is no federal equivalent to California's meal and rest break regime.

The key metric is the premium pay trigger: each missed, late, or shortened meal or rest break costs the employer one additional hour of the employee's regular rate of pay (Labor Code § 226.7). If an employee works an 8-hour shift and misses both their meal break and one rest break, that is a $50 to $70 cost for a single shift, and it repeats every time it happens.

A second meal period (after 10 hours) can be waived by mutual agreement if the employee did not waive the first meal period and will work no more than 12 hours total. Rest breaks cannot be waived.

Leave Entitlements

California employees are entitled to more leave protections than workers in any other state, and most of these protections begin with your very first employee, not at a higher headcount threshold.

How CFRA and FMLA Interact

California's Family Rights Act (CFRA) covers employers with 5 or more employees, a much lower threshold than the federal FMLA (50 employees). CFRA also allows employees to designate any individual related by blood or with a family-equivalent relationship as a qualifying "designated person" for leave purposes, which is broader than FMLA's family definition. When both laws apply, the leaves run concurrently. An employee taking 12 weeks of CFRA leave is simultaneously using their 12 weeks of FMLA entitlement. The net result: at 50+ employees, an employee gets exactly 12 weeks of job-protected leave for most qualifying reasons.

The exception is pregnancy-related disability leave (PDL). For a complete guide to what should be included in an onboarding packet for new California hires, including leave policy acknowledgments, see the new hire documents checklist. PDL applies before and after childbirth for the period of actual disability, which can be up to 4 months. Unlike CFRA and FMLA, PDL has no minimum tenure or hours-worked requirement. An employee qualifies on their first day of work. CFRA's baby bonding leave then applies after PDL ends. For eligible employees at a 5+ employer, this can stack to provide up to 7 months of total job-protected leave related to pregnancy and birth. At employers with 50+, FMLA runs concurrently with PDL (not CFRA bonding), creating an even more complex calculation. Consult an employment attorney if you face this scenario.

Paid Sick Leave: What Changed with SB 616

Effective January 1, 2024, California's paid sick leave minimum increased from 3 days (24 hours) to 5 days (40 hours) per year under SB 616. The accrual rate remains 1 hour for every 30 hours worked, but employers may also front-load 40 hours at the beginning of the year or benefit period.

Accrual cap: employees may cap accrued sick leave at 80 hours (10 days). Employees may use up to 40 hours (5 days) per year regardless of their accrual balance. Several local ordinances require more generous sick leave: San Francisco requires up to 72 hours for employers with 10 or more employees. Los Angeles requires up to 48 hours for employers with 26 or more employees.

Paid sick leave can be used for the employee's own illness or preventive care, to care for a family member, for domestic violence, sexual assault, or stalking situations, and since AB 2499 (effective January 1, 2025), for jury duty (effective October 2025).

New Leave Requirements Since 2023

Two relatively new California leave obligations catch small employers off guard. If you are managing these leave types for a distributed team, the remote onboarding guide addresses how to document and communicate leave policies when employees are not in a single office.

Bereavement leave (AB 1949): Effective January 1, 2023, employers with 5 or more employees must provide up to 5 days of bereavement leave for the death of a qualifying family member. The leave does not need to be paid, but employees may use accrued paid sick leave or PTO to cover it. The leave does not need to be consecutive but must be completed within three months of the qualifying event. Qualifying family members include a spouse, child, parent, sibling, grandparent, grandchild, domestic partner, or parent-in-law.

Reproductive loss leave (SB 848): Effective January 1, 2024, employers with 5 or more employees must provide up to 5 days of leave after a qualifying reproductive loss event, defined to include miscarriage, failed surrogacy, failed adoption, stillbirth, or an unsuccessful assisted reproduction. The leave does not need to be paid, but employees may use accrued paid leave. If both parents work for the same employer, each may take up to 5 days. Employers may not discharge, discriminate against, or retaliate against an employee for taking this leave.

Other Mandatory Leave Types

California requires several additional leave types that often catch small employers off guard. Voting leave requires employers of any size to provide up to two paid hours at the beginning or end of a shift for statewide elections, with 10-day advance notice posting required. Military leave follows both federal USERRA and California Military and Veterans Code, which provides 17 days per year of protected leave for military training. Employers with 25 or more employees must also provide 10 days of leave for a military spouse when their partner is deployed. Organ and bone marrow donor leave (Labor Code §§ 1508-1513) applies to employers with 15 or more employees: 30 paid days for organ donation and 5 paid days for bone marrow donation. School activities leave covers up to 40 hours per year for parents to attend school activities, applying to employers with 25 or more employees (Labor Code § 230.8).

Workplace Safety: Cal-OSHA and IIPP Requirements

California operates its own occupational safety and health program under Cal-OSHA, which in many areas is stricter than federal OSHA. Every California employer with at least one employee is required to maintain an Injury and Illness Prevention Program (IIPP).

IIPP: Required for Every Employer

California Labor Code § 6401.7 requires every employer to establish, implement, and maintain an effective IIPP. The program must be in writing and must address eight specific elements.

Cal-OSHA provides free IIPP model programs at dir.ca.gov for different types of businesses. Once your safety documentation is in order, connecting it to your broader HR policies is easier when everything lives in one place. FirstHR keeps compliance documents, onboarding workflows, and training records in a single system for small business teams. A general industry template is a reasonable starting point, but it must be customized to reflect your actual workplace hazards.

Workplace Violence Prevention Plan: New Requirement (SB 553)

Effective July 1, 2024, most California employers must establish, implement, and maintain a Workplace Violence Prevention Plan (WVPP) as a standalone document or as part of their IIPP. The plan must include procedures for identifying and evaluating workplace violence hazards, correcting those hazards, responding to workplace violence incidents, training employees, and maintaining a violent incident log.

Exceptions include employers with fewer than 10 employees who have no public access and certain healthcare settings already covered by Cal-OSHA's healthcare violence prevention standard. Cal-OSHA has published a model WVPP at dir.ca.gov that satisfies the requirement. Records of incidents, investigations, and hazard corrections must be retained for five years. Starting January 1, 2025, labor unions may seek a temporary restraining order on behalf of employees when a workplace violence threat is present.

Heat Illness Prevention

California has one of the strictest heat illness prevention standards in the country. The outdoor heat illness prevention standard (8 CCR § 3395) applies whenever the temperature is 80 degrees or higher. An indoor heat illness prevention standard (8 CCR § 3396) was finalized in July 2024 and applies when indoor temperatures reach 82 degrees or higher during working hours.

Both standards require shade or a cool-down area, cool drinking water (at least 1 quart per hour per employee), rest periods for heat recovery, and emergency response procedures. The outdoor standard has additional requirements when temperatures exceed 95 degrees, including a "high-heat" communication system and mandatory pre-shift reminders.

Anti-Discrimination and Harassment

California's Fair Employment and Housing Act (FEHA), administered by the Civil Rights Department (CRD), provides broader anti-discrimination protections than federal law. The law applies to employers with 5 or more employees (not 15 as under federal Title VII) and covers a longer list of protected characteristics.

Protected Classes Under FEHA

FEHA prohibits discrimination, harassment, and retaliation based on: race, color, national origin, ancestry, religion, sex (including pregnancy, childbirth, and related medical conditions), sexual orientation, gender identity and expression, marital status, age (40+), physical disability, mental disability, medical condition, genetic information, military and veteran status, reproductive health decision-making, and as of January 1, 2025, intersectionality (SB 1137, which protects against discrimination based on a combination of two or more protected characteristics).

Pay Transparency: Required in Job Postings

Effective January 1, 2023, employers with 15 or more employees must include the pay scale (the salary or hourly wage range reasonably expected to be offered) in all job postings, including those posted through third-party platforms. SB 1162 also requires employers with 100 or more employees to submit annual pay data reports to the CRD, broken down by job category, race, ethnicity, sex, and pay band. The reporting portal opens annually on February 1, and reports are due by the second Wednesday in May.

Harassment Training Requirements (SB 1343)

Employers with 5 or more employees must provide harassment prevention training:

• Supervisors: 2 hours of training every 2 years, within 6 months of hire or promotion to a supervisory role
• Non-supervisory employees: 1 hour of training every 2 years

Training must be interactive, either conducted live (in person or via webinar with a trainer available to answer questions) or through an e-learning platform with a helpline. For seasonal and temporary employees, the deadline is 30 days after hire or 100 hours worked, whichever comes first. Training cycles run on even years (2024, 2026, 2028). It must cover harassment based on all protected categories, abusive conduct (AB 2053), bystander intervention, and how to report harassment. For a complete anti-discrimination policy template to include in your handbook, see the employee handbook guide. The CRD provides free courses at calcivilrights.ca.gov that satisfy the requirement.

Non-Compete Agreements: Void in California

Business and Professions Code Section 16600 makes non-compete agreements void and unenforceable in California. This is not new law; California has prohibited non-competes for decades. What is new as of 2024 is the scope and enforcement mechanism.

Under SB 699 (effective January 1, 2024), this prohibition extends to agreements signed in other states by employees who live or work in California. An employee who signed a non-compete with a Texas employer before moving to California cannot be bound by it here. Under AB 1076 (effective January 1, 2024), employers were required to notify current and former employees (employed after January 1, 2022) in writing by February 14, 2024, that any non-compete clauses in their agreements are void.

Attempting to enforce a non-compete, threatening enforcement, or even including such a clause in a contract is now an unlawful business practice that can trigger civil liability, not just unenforceability.

Equal Pay and Salary History Rules

California's Equal Pay Act (Labor Code § 1197.5) requires equal pay for substantially similar work, not just identical jobs. Substantially similar is a broader standard than the federal Equal Pay Act's requirement for equal work, and comparisons can be made across different office locations, not just employees working side by side. Employers cannot use an employee's prior salary history to justify a pay disparity. Penalties include back wages, liquidated damages equal to the back pay amount, and attorney fees.

The salary history ban (AB 168, Labor Code § 432.3) applies to all California employers and has been in effect since January 1, 2018. You cannot ask job applicants about their current or prior compensation. If an applicant voluntarily discloses salary history, you cannot use that information to set their pay. Upon request from an applicant, you must provide the pay scale for the position being filled. Current employees may also request their pay scale at any time.

Filing a Complaint with the CRD

Employees have three years from the date of the last discriminatory or harassing act to file a complaint with the California Civil Rights Department (CRD), a significantly longer window than the 180 to 300 days allowed under federal law. After the CRD issues a Right-to-Sue notice, the employee has one year to file a lawsuit in civil court.

Complaints can be filed online through the CCRS portal at ccrs.calcivilrights.ca.gov, by phone at 800-884-1684, or by mail. A CRD complaint is automatically shared with the EEOC under a worksharing agreement, so filing with one agency satisfies the requirement to exhaust administrative remedies with both. Free mediation through the CRD's Dispute Resolution Division is available before or during the investigation process.

Termination and Final Pay

California has strict rules about when a final paycheck must be issued. If your company uses a probationary period policy, the 90-day probation guide explains how to align that structure with California's at-will framework. For the full end-to-end exit workflow including IT offboarding and knowledge transfer, see the employee exit process guide.

For the full offboarding process including documentation, equipment return, and knowledge transfer steps, see the employee offboarding guide. The final paycheck must include all earned wages (including any wages owed for hours worked through the final day), all accrued but unused vacation time or PTO (California treats accrued vacation as earned wages that cannot be forfeited), and any other compensation owed. Employers cannot require a departing employee to use accrued sick leave instead of paying it out, but note: California only requires payout of accrued vacation/PTO, not accrued sick leave (unless your policy provides otherwise).

Paying Out Accrued Vacation

California courts have consistently held that accrued vacation time is a form of earned wages under Labor Code Section 227.3. An employer cannot implement a "use it or lose it" vacation policy that causes earned vacation to expire without pay. What is permitted is a cap on accrual: once an employee reaches the cap, they stop accruing until they use some vacation. But vacation already accrued must be paid out at termination.

If your vacation policy has a cap, it needs to be clearly documented and communicated. The cap should be reasonable (typically 1.5 to 2 times the annual accrual rate). An unreasonably low cap that effectively functions as "use it or lose it" may not be enforceable.

COBRA and Cal-COBRA at Termination

Federal COBRA continuation coverage applies to employers with 20 or more employees. California's Cal-COBRA applies to employers with 2 to 19 employees and provides departing employees with up to 36 months of continuation coverage (versus 18 months under federal COBRA). You must provide a Cal-COBRA election notice within 14 days of the employee's last day. Failure to provide timely notice can expose you to a claim for the employee's out-of-pocket medical costs during the period when they should have had access to continuation coverage.

Employee Privacy Rights

California has the strongest employee privacy protections of any state, grounded in the California Constitution's explicit right to privacy (Article I, Section 1). Three areas require active attention from every employer regardless of size.

CCPA/CPRA: Employees Now Have Full Consumer Privacy Rights

The employee exemption from the California Consumer Privacy Act expired on January 1, 2023. Employees of businesses meeting the CCPA threshold (annual revenue of $25 million or more, processing data of 100,000 or more consumers or households annually, or deriving 50% or more of revenue from selling personal information) now have the same seven data rights as any consumer: the right to know what personal information is collected, the right to correct inaccurate data, the right to delete personal information, the right to opt out of the sale of their data, the right to limit use of sensitive personal information, the right to non-discrimination for exercising privacy rights, and the right to receive notice at the time personal information is collected.

Employers subject to CCPA must respond to employee data requests within 45 days (extendable by an additional 45 days with notice). Penalties run $2,500 per unintentional violation and $7,500 per intentional violation. Privacy policies must be updated annually, with the new version in place by January 1 each year.

Monitoring, Recording, and Personnel File Access

California Penal Code § 632 requires all-party consent before recording any confidential communication. This is a criminal statute, not just a civil one. If you record phone calls, video meetings, or in-person conversations for training, documentation, or any other purpose, every participant must be informed and must consent. A verbal disclosure at the start of a call ("this call may be recorded") satisfies the notice requirement, but you must allow participants to opt out of recording before the conversation begins.

Workplace monitoring through cameras, computer tracking, email review, or other means is permissible, but only if employees are informed through your CCPA privacy notice and written policies. Covert monitoring of private areas such as restrooms or changing rooms is illegal under any circumstances.

Under Labor Code § 1198.5, current and former employees have the right to inspect their personnel files within 30 calendar days of a written request. Former employees may make this request once per year. You must retain personnel files for at least three years after an employee leaves. Failure to provide access within the required timeframe exposes you to a $750 penalty per violation plus attorney fees.

California Labor Code § 980 (AB 1844) prohibits employers from requiring employees or applicants to provide passwords to personal social media accounts, from requiring them to log in to personal accounts in the employer's presence, or from compelling them to add the employer as a connection or friend on personal platforms. Anti-retaliation protections apply to employees who refuse these requests.

Required Workplace Postings

California requires employers to display a specific set of notices in a prominent location where all employees can see them. Remote and hybrid workplaces must distribute notices electronically to employees who do not have regular access to a physical posting location.

All required California postings are available free of charge at dir.ca.gov/wpnodb.html. Download directly from the DIR to ensure you have the current version. Posting outdated notices can count as a failure to post. Cal-OSHA and the Labor Commissioner conduct periodic inspections and assess penalties for missing or outdated postings.

Employee Handbook: Required Policies

California does not technically require employers to have a written handbook. But many individual policies must be communicated in writing, and the practical reality is that a handbook is the most effective way to document and deliver all required notices, establish at-will status, and protect yourself in litigation.

The most important compliance function of a California handbook is establishing at-will employment clearly and conspicuously. The language should appear prominently, ideally on the first page and in the signature acknowledgment. It should also be included in offer letters. For a step-by-step guide to writing a compliant handbook, including California-specific policies, see the employee handbook guide. For a ready-to-use starting point, the sample employee handbook includes California-compliant policy language you can adapt directly.

Arbitration Agreements in 2024 and Beyond

California's AB 51, which attempted to prohibit mandatory arbitration agreements as a condition of employment, was permanently enjoined by the Ninth Circuit in January 2024 (Chamber of Commerce v. Becerra). The Federal Arbitration Act preempts AB 51. This means California employers may require mandatory arbitration agreements as a condition of employment.

Important limitations remain. Arbitration clauses cannot waive the right to bring a representative PAGA (Private Attorneys General Act) action in court (under Viking River Cruises v. Moriana as interpreted by California courts). Sexual harassment and assault claims cannot be subject to mandatory arbitration under the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (2022). And courts will still strike down individual arbitration clauses that are unconscionable.

Payroll Taxes and Workers' Compensation

California employers collect and remit four payroll-related taxes, two paid by the employee and two by the employer. Every employer must register with the EDD within 15 days of paying $100 or more in wages in a calendar quarter.

The Four Payroll Taxes: Rates and Limits for 2025

New employers pay UI at a flat rate of 3.4% for their first two to three years, after which their rate is based on their claims experience. The SDI rate increases to 1.3% on January 1, 2026. Because the wage cap on SDI was eliminated in 2024, high-earning employees now pay SDI on their full salary rather than capping out mid-year. For a $200,000 salary, the SDI cost to the employee increased from roughly $1,378 (under the old cap) to $2,400 annually at the 1.2% rate.

All payroll tax registrations and filings are handled through the EDD e-Services for Business portal at edd.ca.gov. Quarterly DE 9 and DE 9C reports are due on the last day of the month following each quarter end.

Workers' Compensation: Required from Your First Hire

Labor Code § 3700 requires every California employer with one or more employees to carry workers' compensation insurance. There are no size exemptions. You can obtain coverage through a licensed private insurer, through the State Compensation Insurance Fund (a state-operated insurer of last resort), or by qualifying as a self-insured employer (which requires state approval and substantial financial reserves).

The penalties for operating without workers' compensation coverage are severe. Criminal penalties under Labor Code § 3700.5 include fines of at least $10,000 or imprisonment of up to one year. Civil penalties under Labor Code § 3722(b) can reach $100,000. The Labor Commissioner can issue a stop-work order requiring you to cease all business operations until coverage is obtained. Most significantly, you become personally liable for all medical costs, temporary disability payments, and permanent disability awards for any injured employee during the period of non-coverage. These costs can easily exceed $100,000 for a serious injury.

California Requirements by Employer Size

One of the most confusing aspects of California compliance is that different obligations activate at different employer size thresholds. This table gives you a complete picture.

The most critical insight from this table: California is extremely aggressive about starting compliance obligations at small headcounts. FEHA anti-discrimination, CFRA leave, PDL, bereavement leave, reproductive loss leave, Fair Chance Act background check rules, and sexual harassment training all apply starting at 5 employees. If you have 5 people on payroll, you are not a small business from a California compliance standpoint. You have the compliance obligations of a mid-size company in most other states.

Key Legislative Changes 2023-2026

California's legislature passes significant employment law changes every year. Here is a consolidated timeline of what has changed and what is coming, so you know what to review in your policies and handbooks.

The two changes most likely to affect small businesses that are not yet in compliance: SB 553 (workplace violence prevention plan, effective July 1, 2024) and SB 294 (Know Your Rights notice, first distribution required by February 1, 2026). If you have not yet created a workplace violence prevention plan, that is now overdue. If you have not prepared your Know Your Rights distribution for February 2026, start now.

For a broader overview of what onboarding paperwork, compliance steps, and documentation practices should look like when you bring on a new employee in California, see the employee onboarding plan guide.

Frequently Asked Questions