California labor laws build off the foundation of federal laws that impact your business. What’s important when looking at labor laws in California is to be aware of local statutes that affect your workforce as well. These are often more favorable to the employee than federal or state laws. We’ll explain what you need to know.
Outsourcing payroll and benefits to a third-party HR expert like Zenefits is a great way to ensure compliance with California’s state and local labor laws. In addition, you’ll be giving your employees a self-service option to manage time off and pay stubs. That saves you from answering routine questions about HR, benefits, and payroll. Get a free trial.
How California Labor Laws Work
California adds its own labor laws to the mix of federal workforce and employment rules that small businesses need to contend with. For example, the California minimum wage is higher than what the feds require, and overtime is stricter. In addition, many larger urban areas have enacted their own minimums to provide a livable wage to workers in urban areas with a high cost of living, like San Francisco and Los Angeles.
Below is a sampling of labor laws that affect how small businesses manage payroll in California. For those interested in doing payroll in California, you can find additional details in our article, How to Do Payroll in California. However, California labor laws extend well beyond payroll, so these are just the tip of the iceberg.
California Payroll Laws
|Payroll Impact||California State Payroll Laws|
|Minimum Wage||$10/$11 per hour based on employer’s size. San Francisco’s is $15/hour.|
|Pay Stubs||Must provide to employees with earnings, deductions, sick leave accruals & more.|
|Overtime & Breaks||California overtime is based on hours worked in a day and week & the number of contiguous days worked. In addition, you must pay employees $100/day extra if they can’t take their break.|
|Paid Time Off & Leave||Many California laws kick in once an employer has 5 or more employees, e.g., paid sick leave, pregnancy leave, disability & unemployment.|
|Equal Pay||California extends anti-discrimination laws to multiple classes such as pregnant women & an individual's sexual orientation.|
|Unemployment, Disability & Workers' Comp||Disability insurance is state mandated, as is unemployment insurance in California. California adds requirements to accommodate new parents as well as pregnant & nursing moms.|
|Payroll Taxes||California adds four additional taxes: two paid by employer & two paid by employees.|
Disclaimer: Fit Small Business is not a licensed attorney. Any questions you have about labor laws in California and how they impact your business should be directed to your business lawyer. If you don’t have a business lawyer, consider consulting a fee-based legal firm like LegalZoom.
Who California Labor Laws Affect
How California labor laws affect your business depends on several factors. That’s similar to federal labor laws that only come in to play for specific industries (construction) or for employers of a certain size (15, 50, and 250). You’re probably familiar with the Family Medical Leave Act (FMLA) that allows pregnant moms to take unpaid leave in companies with 50 or more employees. In California, that leave extends to pregnant moms working in companies with as few as five employees.
Here are examples of how businesses are affected by labor laws unique to California:
- All companies in California: Must comply with California’s sick leave laws and overtime rules. Also, employers must provide a written pay stub documenting earnings, deductions, and net pay. You cannot force an employee to use direct deposit. In addition, if you fire an employee, you must give them their final paycheck immediately.
- Businesses with five or more employees: Are required to provide pregnancy leave; in addition, they may not discriminate against any protected class of people, including gender identity, genetic information, and mental disability as well as race, creed, and sex.
- Firms with 15, 20, or more employees: Unique protected leave kicks in for new parents, organ and bone marrow donors, and those serving civil air patrol duties.
- Companies with 25 or more employees: Must provide drug and alcohol leave as well as family military leave.
- Businesses with 50 or more employees: Required to extend FMLA for domestic violence or stalker victims; some of that leave qualifies as paid time off.
- Companies located in larger urban areas: May be required to provide commuter benefits, additional days of paid sick leave, or a higher minimum wage.
- Companies in specific industries: Unique regulations such as overtime, injury prevention, or cell phone use while driving may kick in based on the industry, like transportation, health care, agriculture, construction, or manufacturing.
Because employers in California face a trifecta of labor law compliance issues (federal, state, and local), many choose to work with an outsourced HR service or invest in HRIS software. In fact, new laws may impact employers based on unique factors like the size of your board of directors, as shown in the image below.
HR vendors can prevent costly audits, fines, and penalties as well as help you avoid time-consuming lawsuits that risk tapping into your bank account and damaging your employment brand.
Outsourcing employee-related labor law compliance issues to an HRIS expert like Zenefits is a great way to prevent costly fines and penalties in California. In addition, you’ll save time by giving your employees an HR portal where they can view and update their own data—from pay stubs to benefits options. Get your free trial.
California Labor Law Compliance Costs
Complying with California labor laws can cost as little as a few dollars per employee, per month, to upwards of hundreds of dollars per worker, per month, based on your company size and the approach you take. For example, hiring a full-time HR manager may cost well over $50,000 a year, whereas working with an HR outsourcing firm may cost a fraction of that amount.
Here are examples of costs you might incur to comply with California labor laws:
- Lawyer: Hiring a lawyer to review all your HR documents and employment contracts may cost hundreds of dollars an hour. Defending a lawsuit can cost thousands.
- Outsourced HR: Outsourced HR firms can provide templates and consulting services that range from about $100 per hour to thousands of dollars per year.
- HR manager: An HR manager may set you back $23,000 to $153,000 per year, with the higher salary being paid for a director level or above. The average is about $54,000.
- HRIS software: HR software typically costs $6 to $12 per employee, per month, with a base fee in the range of about $40 per month.
- Professional employer organization (PEO): A PEO can provide HR software and consulting services but often costs well over $100 per employee, per month.
Depending on your own level of HR expertise, tolerance for risk, and services provided by your payroll service provider (some offer HR services and consulting), you may be able to manage some of the compliance yourself.
However, the true cost of compliance with labor laws in California is the cost of non-compliance. Fines and penalties can easily run into $10,000 or more, as some are calculated per employee, per pay period, and can multiply quickly.
Here’s an example from a labor law attorney in California:
Andrea Paris Law, PC, Employment Law | Business Litigation, Andrea Paris Law, PC
There are penalties that the employees themselves could seek. Additionally, there are penalties that the Labor Commissioner could assess. What the total potential exposure could be will depend on how many employees are affected, how long the violation continues, and whether there was a previous violation. Many of the penalties, like failure to provide wage statement violations, are assessed per pay period, so if employees get paid twice a month, and you have 100 employees and it goes on for a year, you’re looking at a total of $260,000 in penalties between the employees and the state.
Providers That Can Help You Manage Labor Laws in California
While enterprise employers can afford on-staff attorneys and full-time HR support staff, small businesses have a unique challenge: They have to manage California labor law compliance on a limited budget. Fortunately, cloud-based software providers have popped up over the past decade to do much of the work for you by programming labor laws into their software.
Here are four kinds of providers that can keep your business in compliance:
Time and attendance software, like When I Work, offers leave management and overtime compliance by keeping track of employee time off requests (including paid sick leave) as well as by managing the unique overtime laws in California. Timekeeping data is saved electronically and can be passed to your payroll software in just a few clicks.
2. HR Software
HR software provides labor law compliance by managing employee leave as timekeeping software does. It adds tools like onboarding, new hire documentation, reporting, and training to help prevent harassment or to comply with labor law postings and anti-discrimination. Some, like Zenefits, can also provide mandated benefits, and HR or payroll consulting for additional fees. Zenefits starts at $5 per employee, per month, plus a $40 monthly service fee.
Payroll software providers like Gusto typically add basic HR compliance services for small employers, including online document storage and pay stubs that comply with California’s unique requirements. Gusto includes these features in its base price starting at $45 per month, whereas others often charge extra for the HR components.
The smallest of companies, such as a mom-and-pop restaurant or a retail firm that does little more than hire family members, may be able to get by working with an HR consultant part-time. Firms like Bambee provide on-demand HR consulting to your business for as low as $99 per month.
California Labor Law Components
California doesn’t have just one governing body that mandates employment law in the state. Workforce legislation is managed by multiple state agencies. Adding to the labor law complexity in California is the fact that each agency may make modifications at any time. You may be compliant this year, but what about next year?
Here are the most notable agencies and laws and where to find additional information on each:
California Labor Laws
|Law||Where to Find More Info|
|California Labor Code||California Legislature Website|
|California Payday||California Department of Industrial Relations|
|Cal COBRA||Department of Managed Healthcare|
|California Paid Family Leave (PFL)||Economic Development Department|
|Healthy Workplaces, Healthy Families Act (HWHFA)||Department of Industrial Relations|
|California Unemployment Disability||Economic Development Department|
|California Family Medical Leave||California Chamber of Commerce|
|California Family Rights Act (CFRA)||California Legislative Information|
|California Payroll Taxes||Economic Development Department|
|Wage Theft Protection Act||Department of Industrial Relations|
|Pregnancy Disability Leave (PDL)||Fair Employment and Housing (DFEH)|
|Uniformed Services Employment and Reemployment Act (USERRA)||Department of Labor|
|Cal WARN Act||Worker Adjustment and Retraining|
|Cal OSHA Act||Title 8 California OSHA|
|Consumer Credit Reporting Agencies Act||California Legislative Information|
|California State Disability Insurance (SDI)||State Disability Insurance|
Keep in mind that your local government may have its own unique statues, not listed above. The best way to find them is to do an internet search of “labor law” or “employment laws” plus “(your city name).”
Labor law attorney Andrea Paris adds:
The two big [localized regulations] to look out for with requirements above the state minimum are 1) paid sick leave (San Diego is highest with 80 hours cap versus California’s cap at 48 hours, followed by Los Angeles at 72 hours and Oakland and San Francisco at between 40 and 72, depending on the employer’s size); and 2) minimum wage with many cities at or above $15 per hour, mainly in the Bay area (San Francisco, San Mateo, Santa Clara, Sunnyvale, San Jose, Richmond, Palo Alto, Mountain View, Emeryville, Cupertino, Berkeley, and so on).
Risks of Non-compliance With California Labor Laws
In our social-media dominated society, it’s in an employer’s best interest to comply with all applicable labor laws, even if you’ve never been audited or fined.
Here are some of the risks of non-compliance:
- Difficulty hiring and retaining employees: Once workers realize your business doesn’t comply with labor laws, you’ll have a tough time hiring and keeping staff.
- Damage to your brand reputation: Consumers are savvy as to which brands take care of their employees, and they may not choose to do business with you if they feel that you skirt the law, or if you’re caught violating fair labor practices.
- Fines and penalties cost money: Each of the agencies has a means to fine or penalize businesses for compliance failures. For example, sick leave or wage violations often require fines that are double the original complaint and compounded by the number of employees you have and the number of pay periods affected.
- Lawsuits: Even a lawsuit you ultimately win can cost tens of thousands of dollars to defend. One sexual harassment claim alone can cost up to $100,000 to defend against.
Alternatives to California Labor Law Compliance
If complying with California labor laws has you reconsidering being a business owner altogether—don’t fret. There are employment options that can take most of the paperwork and risk off your shoulders. These range from outsourced HR providers to hiring gig workers and temps.
Here are alternatives and options for complying with employment laws in California:
Outsource to a PEO
Businesses that want to do more than simply comply with California labor laws are well served to partner with a professional employer organization (PEO). A PEO serves as a co-employer by managing the paperwork and compliance side of the employment relationship with your staff while you manage their day-to-day work activities.
Many small businesses choose to work with a PEO because it’s less costly than hiring a full-time HR or payroll resource to manage all the employee-related requirements. In addition, PEOs can help you reduce your workers’ comp costs and often provide your workers with health insurance and other employee perks.
Hire Contract or Gig Workers
The federal government is clear on who can be hired and paid as a 1099 independent contractor and who must be hired as an employee. If the work fits the requirement of a gig worker, it’s possible you can get by without hiring direct employees or managing all that compliance paperwork. Make sure you’re clear on the difference between employees and contractors so that you don’t risk misclassifying workers and suffer fines.
Use a Virtual Assistant
Depending on the work being done, you may find yourself able to outsource work to a virtual assistant (VA), either as a contractor or more commonly by working with a virtual assistant company. This works best for administrative, project, or other knowledge work that doesn’t require the worker to be onsite, such as website management or email marketing. Your VA hired as a gig worker may be an independent contractor (paid with a 1099) or they may be a full-time employee hired and paid through a VA company.
Hire Through a Temp Agency
A temp agency or employment service is a company that hires and manages employees. They then lease those workers out to your business at a rate that’s about 30% or more than you’d pay if you had to hire that person yourself. However, the benefit is that you do nothing more than select the right employee for the job and pay a monthly invoice to the temp firm based on the hours the temporary employee works at your site.
Keep in mind that California often includes non-employees like independent contractors with safeguards typically reserved for direct hire employees. As a best practice, avoid any type of discrimination, even when working with contractors and temps.
California attorney Andrea Paris reminds us:
Even if you think you don’t have employees, you may actually have employees and be subject to employment laws without knowing it. The default in California is that anyone who works for you is an employee unless you can meet the requirements of taking them out of that classification. So if a company uses independent contractors, temps, interns, volunteers, and even family members of a corporation’s owner to provide services to the company, it is very likely that those people will be treated as employees under the Labor Code.
Frequently Asked Questions (FAQs) About Labor Laws in California
Below are a few questions you might have as a small business managing staff in California. Many of the websites listed above also provide employer FAQs. If you can’t find the answer you seek, consider posting it on our forum. We’ll do our best to find you a solid answer.
How are meal & rest breaks handled in California?
California mandates meal and rest breaks and is very specific about when and how long the breaks need to be, as well as whether they are to be paid or unpaid. California Labor and Employment Law provides this handy chart and calculator. Like most laws in California, the actual requirement depends on several factors, such as how many hours the employee works per day and what industry they’re in.
Am I required to provide breastfeeding breaks to new moms?
In a word, yes. Breastfeeding and lactation breaks (used to pump milk) are required. For more information, you can read about breastfeeding rights in California.
Are child labor laws stricter in California?
Yes. California requires employers to obtain a work permit from the child’s school, and to limit the hours a teenager (under age 16) works to no more than three hours on a school day. Those who are 16 and over may work four hours a day during the school week. In addition, there are restrictions on how late into the evening a minor can work. You can find more information at minimum-wage.org.
Does California “Ban the Box”?
Yes. “Ban the box” refers to asking criminal history questions on a job application or during the interview. If you have five or more employees, you must avoid any discussion of a job seeker’s criminal background until after you’ve made a job offer to the candidate. This falls under the California Fair Employment and Housing Act and ensures that qualified job seekers aren’t screened out before having a chance to demonstrate their ability to do the job. You can learn more by referring to the California Fair Chance Act.
Can I run a credit check on a job seeker in California?
Yes, you can run a consumer report as part of your post-offer pre-employment background check. However, similar to drug testing and criminal background checks, you must provide written notice to the job candidate in advance.
Are there restrictions on asking about prior salary history?
Yes. You may not ask about salary history, either in person or on the job application. That means you may need to remove the salary field from your job application form’s work history section. In addition, an applicant (or employee) who asks you how their salary is determined must be provided with a pay scale for the position.
Can I prohibit employees from sharing their pay rate with others?
No. In California, employees have the right to ask about, share, and discuss their pay. You may not discipline or retaliate against employees for sharing their salary. If your current employee handbook contains a statement prohibiting this behavior, you would be best served to remove it.
What do fines & penalties cost?
There’s such a huge range of fines and penalties. They may be small, like a $100 penalty for a first-time employee payment issue (such as not paying overtime). Some employers find themselves paying fines in the millions due to repeating the same mistake with multiple employees over multiple pay periods.
What new labor laws are coming to California in 2020?
The Society for Human Resource Management (SHRM) reports that California will be adding consumer privacy laws, additional training requirements for anti-harassment, and may soon require employers to pay their “on-call” employees extra.
CalChamber is a membership resource that provides guidance and training to California businesses that can help you stay on top of new laws to avoid fines and penalties. Attorney Andrea Paris also recommends viewing the California Labor Commissioner’s website.
The best way to ensure your employment practices are compliant with California labor laws is to partner with a vendor that has expertise in California. Vendors like HR and payroll providers commonly build their software in compliance with labor laws, updating the code as those laws change. Working with an HRIS helps avoid mistakes, such as when minimum wage or sick leave laws are revised in your city.
Zenefits is HRIS software designed in compliance with all U.S. state labor laws, including local laws that are often stricter, such as in the San Francisco Bay area and Los Angeles County. In addition, with Zenefits, you can upgrade your service as your business grows and you need to comply with larger employer labor laws, such as the ACA, by offering health insurance. Sign up for a demo.