The Complete Guide To California Payroll & Payroll Taxes

This national program aims to help people through periods of unemployment. The employer pays UI — the rate schedule is published annually. Employers are required to pay up to 3.4% on the first $7k of employee wages.

According to the California government, “The ETT [California Employment Training Tax] provides funds to train employees in targeted industries to make California businesses more competitive.” This is an employer-paid tax. The current California Employment Training Tax rate is one-tenth of 0.1 percent on the first $7,000 of each employee’s annual wages.

The State Disability Insurance (SDI) Tax provides temporary benefits and payments to workers who are unable to work because they, or someone in their immediate family, is disabled, injured, or ill. This tax also covers family leave. Employers don’t pay the SDI tax but are expected to withhold it from their employee’s paychecks. The current California SDI rate is 1.1%, with a maximum of $1,601.60 per employee each year.

California’s personal income tax (PIT) is used to provide resources and public services like schools, roads, public parks, and health. Withholdings are based on an employee’s filings on their W-4. personal income tax rates vary from 1% – 13.30%. Employers are responsible for withholding personal income tax based on their employees’ W-4 withholding selections.

California’s Proposition 13, enacted in June of 1978, capped the rate against which the state could tax real property at 1%. What’s more, the law requires that local elections achieve a two-thirds majority in favor of increasing this one percent. Since its passage, Proposition 13 has remained virtually unchanged and still applies to all residential and commercial real property in California. Employers are responsible for their own business’s property taxes.

The Bradley-Burns Uniform Sales and Use Tax Law of 1956 created sales and use taxes that were split between the state, the city, and the county. California’s current rate for use and sales taxes is 7.25%, six percent of which goes toward the state of California, one percent toward the local city or county, and the remaining toward local transportation. California uses additional district tax rates that are higher than 7.25% for certain parts of the state. According to California’s laws, businesses in California have to collect and pay sales tax.

Like other states, California has minimum wage laws that business owners need to follow when recording and reporting their payroll. California’s minimum wage is $16.00/hour. However, certain industries may have higher minimum wage requirements. For example, some fast food workers have a minimum wage of $20.00/hour.

It’s good practice to document your minimum wage rates for each fiscal year and report changes you make to your company’s minimum wage policy. California is relatively strict about compliance poster obligations for business owners. The state asks that all business owners post their business’s policy regarding wages earned, including minimum wage rates.

California uses its UI tax to keep compensation programs afloat for people who are unemployed. Any employer who has spent more than one hundred dollars on employee wages needs to record and report UI taxes. This is an important difference between California and most other states, which usually follow federally mandated unemployment tax provisions. California’s cap on annual taxes paid to the state — $7,000 — applies to UI taxes as well. The EDD is responsible for modifying the rate schedule unemployment insurance uses annually. Business owners take that year’s given rate schedule and contribute 3.4% for at least two years.

You’re responsible for reporting new employee information to the California New Employee Registry within the first twenty days of their employment. These reports also go to the EDD, so be careful not to miss deadlines for reporting information on your new employees.

This rule also applies to anyone you’re rehiring if it’s been more than sixty days since their departure. Your information on new hires, as well as rehires, gets reported straight to the New Employee Registry (NER), which helps California work on existing new hire reporting laws. Currently, California does not offer any exceptions for new hire reporting. If you hire or rehire a new employee, you must report their first and last name, social security number, home address, and the date they began work.

California’s Fair Employment and Housing Act requires business owners to adopt equal hiring policies. It’s against the law to discriminate against potential hires on the basis of their race, sex, gender, and much more. The state offers employees multiple ways to file a claim for workplace discrimination. At the state level, the California Department of Fair Employment and Housing (DFEH) is responsible for addressing workplace discrimination claims; the same is true for the Equal Employment Opportunity Commission (EEOC) at the federal level.

Technically, you’re not legally bound to give your employees vacation time and PTO if you operate your business in California. With that said, it’s a good idea to have a way for employees to accrue a fixed amount of PTO per year so that they can take some personal time off. If you do establish a company-wide PTO policy, California considers the PTO you distribute as wages earned by an employee.

California mandates paid sick leave to be given to all exempt and nonexempt employees. And, if an employee collects more PTO than they use in a given year, you’re responsible for paying the amount equal to wages accrued. You need to do the same thing for employees who quit or are fired since PTO distributed under PTO policies is technically wages owed to your employees.

Certain urban districts in California require that employers pay out sick leave to their employees. This varies based on the area, but it’s important to be aware that the state fines businesses that don’t comply with these labor laws. These rules are typically most common in urbanized districts with different local-level laws.

Employers are required to give a rest break every four hours worked. California defines rest breaks as 10 minutes of paid rest.

You also have to provide meal breaks if an employee works for more than five hours. The state compromises with employers by defining lunch as an unpaid break of 30 minutes. However, employers are responsible for paying employees a paid hour of time worked if they don’t get to take a break on a given day.

California’s child labor laws prevent anyone 13 years old or younger from working at a business operating within the state. Labor laws in California restrict people under 18 years old from working without a permit. Youth between 12 and 13 years old can only work during school holidays and vacations, and only up to four hours per week. The laws generally exist to prevent persons under 18 years from providing exploitable labor and economic vulnerability.

You’re responsible for paying your employees twice monthly on your designated paydays. Per California’s Labor Code Section 207, business owners need to show some proof of payment to their employees. This notice of proof includes when you paid an employee, the day you paid them, and where they were paid. For employees whom you have terminated, you’re required to reimburse them with any remaining unremitted wages they have earned.

Your W-2 employees fund their own insurance for state disability, usually referred to as State Disability Insurance (SDI). That means you can choose to provide benefits for disability insurance on top of what your employees already get. These laws can get trickier for 1099 contractors who don’t do business for you or anyone else within California.

Insurance for state disability accounts for illness or injury that happens in your place of business. You need to withhold the SDI rate against the first $122,909 of your employee’s wages. Your employees are responsible for contributing taxable income toward this state-mandated program. Currently, the rate for SDI taxes is  1.1% of their annual wages and there is no longer a wage limit on this tax.

Rates for your workers’ compensation coverage start with work classifications for your employees’ positions. Perhaps you staff someone whose class code comes out to a nice, round number you can use to calculate their rate, say $0.50. Take their salary, another round number of $100,000, and divide that by 100. You’re left with the following formula: $.50 x $1000. This will change based on your employees’ state-designated class codes and salaries earned, but this formula gives insight into the calculations you can expect to see.

Workers’ compensation provides required coverage to employees in nearly every state of the country. In California, businesses are required, at a minimum, to put down $500,000 toward a workers’ compensation insurance policy for their company. You need to cover each of your employees with $100,000 and put the same amount toward a minimum limit toward occurrences your plan covers. Employers are allowed to dispute claims for occurrences off-premises of work or during volunteering. You are still, however, required to cover injury and illness that occurs during work hours.

California employers have to pay payroll taxes for the California employment training tax, on top of federal payroll taxes. They also have to withhold the proper employee payroll taxes for state disability insurance and personal income tax from their employees’ paychecks.

Employers in California have to calculate 7.65% in payroll taxes for each employees’ paycheck for Social Security and Medicare in addition to unemployment and employee training taxes.

In California, Social Security and Medicare, unemployment taxes, state disability insurance taxes, and personal income tax (based on your W-4) are all taken out of each paycheck you receive in California