If you employ anyone in California, labor laws apply to you from day one, and the list of obligations grows as you hire. California labor laws for small businesses layer in at specific headcounts: one employee triggers minimum wage, overtime, meal and rest breaks, paid sick leave, workers’ compensation, and a written safety program; five employees adds anti-discrimination coverage, harassment prevention training, family leave, and criminal background check restrictions; 15 adds pay transparency in job postings; and 20 brings federal continuation health coverage into play. Below is what each threshold actually requires.
Classify Workers Correctly Before Anything Else
Every obligation in this article depends on the person being an employee. California presumes they are. Assembly Bill 5 codified the ABC Test from the Dynamex decision, and the burden sits with you to prove all three prongs if you want to treat someone as an independent contractor.1Labor & Workforce Development Agency. AB5 Statute
- A — The worker is free from your control over how and when the work gets done.
- B — The work falls outside your core business activities.
- C — The worker has an independently established trade or business of the same nature.
Fail any single prong and the worker is an employee by law.2Franchise Tax Board. Worker Classification and AB 5 FAQs Misclassification surfaces during Employment Development Department and Labor Commissioner audits, and the back-pay exposure covers everything you should have been doing: minimum wage, overtime, paid sick leave, payroll taxes, and workers’ compensation.
What You Owe With Just One Employee
Minimum Wage
California’s statewide minimum is $16.90 per hour as of January 1, 2026, with no small-employer exception.3Department of Industrial Relations. Minimum Wage Fast food workers at chains with 60 or more national locations earn at least $20.00 per hour, and healthcare workers earn between $18.63 and $24.00 depending on the facility type.4Department of Industrial Relations. Health Care Worker Minimum Wage Frequently Asked Questions Many cities and counties set higher local minimums, and you pay the highest rate that applies.
Daily and Weekly Overtime
California calculates overtime daily, not just weekly. A non-exempt employee earns time-and-a-half for hours nine through twelve in a single day, and double time beyond twelve. On a weekly basis, hours past 40 trigger time-and-a-half, and work on the seventh consecutive day of a workweek earns time-and-a-half for the first eight hours and double time after.5California Legislative Information. California Code LAB 510 An employee on four ten-hour days earns two hours of daily overtime each shift even though the week totals 40.
To classify a salaried employee as exempt, they must meet both a salary test and a duties test. The salary floor is twice the state minimum wage for full-time work, which comes to $70,304 per year ($1,352 per week) for 2026.6Department of Industrial Relations. California Minimum Wage Set to Increase to $16.90 Per Hour The duties must also fit a recognized exemption category (executive, administrative, or professional). Job titles don’t matter; what the person actually does determines the classification.
Meal and Rest Breaks
An employee who works more than five hours is entitled to an uninterrupted, off-duty 30-minute meal period that starts before the end of the fifth hour. Shifts of six hours or less can be waived by the employee. A second meal period is required beyond ten hours.7Department of Industrial Relations. Meal Periods Rest breaks are a paid ten minutes for every four hours worked (or major fraction), so an eight-hour shift includes two rest breaks.8Department of Industrial Relations. Rest Periods/Lactation Accommodation
Each missed meal or rest break adds one hour of pay at the employee’s regular rate for that workday as a premium. An employee at $20 per hour who misses both in one day is owed $40 extra. Multiply that across a workforce over months and it becomes a real liability.
Paid Sick Leave
Every California employer must provide paid sick leave to employees who work 30 or more days in a year. The minimum is 40 hours or five days per year, whichever is more.9Labor Commissioner’s Office. Paid Sick Leave in California Using the accrual method, employees earn at least one hour for every 30 hours worked and can begin using accrued time on day 90. Annual use can be capped at 40 hours or five days, but balances carry over year to year up to a total accrual cap of 80 hours or ten days.10California Legislative Information. California Code LAB 245-249 Frontloading the full 40 hours at the start of the year avoids tracking accrual.
Workers’ Compensation
Workers’ compensation coverage is required with even one employee. There is no small-business exemption. Operating without coverage is a misdemeanor punishable by up to a year in county jail and a fine of at least $10,000 (or double the premium owed, whichever is greater). A second offense carries a minimum $50,000 fine, and the uninsured employer is personally liable for the full cost of any workplace injury.11California Legislative Information. California Code LAB 3700-5
Written Notice at Hiring and I-9
On a new employee’s first day, you must give them a written notice stating the rate of pay and how it’s calculated, the regular payday, your legal name and address, your workers’ compensation carrier, and their right to accrue and use paid sick leave.12California Legislative Information. California Code LAB 2810-5 The Labor Commissioner publishes a template. Separately, federal law requires a completed Form I-9 for every hire, kept for three years from the hire date or one year after employment ends, whichever is later.13U.S. Citizenship and Immigration Services. 10.0 Retaining Form I-9 E-Verify is not mandatory for most private employers.
Written Safety Program and Injury Reporting
Every California employer, regardless of size or industry, must maintain a written Injury and Illness Prevention Program. The program must name a person responsible for safety, describe hazard training, set a schedule for workplace inspections, explain how hazards get corrected, and give employees a way to report unsafe conditions without retaliation.14Department of Industrial Relations. California Code of Regulations Title 8 Section 3203 Operating without one essentially guarantees a Cal/OSHA citation during any inspection, and employers without an operative program lose favorable penalty adjustments if cited for a serious violation.15Division of Occupational Safety and Health. Enforcement of 8 CCR Section 3203
A work-related fatality or serious injury must be reported to Cal/OSHA by telephone or online no later than eight hours after you learn of it. Serious injury includes inpatient hospitalization longer than 24 hours for treatment (not observation), amputation, or serious disfigurement. Missing the eight-hour window carries a minimum civil penalty of $5,000.16California Legislative Information. California Code LAB 6409-1
Harassment Liability
California’s harassment protections under the Fair Employment and Housing Act cover employers with just one employee. Even the smallest businesses can be held liable for a hostile work environment. (The broader discrimination provisions and the training mandate start at five employees; see below.)
Final Pay
When you fire or lay off an employee, all final wages are due immediately at the time of termination. “All wages” means unpaid hours, accrued vacation or PTO, commissions, and anything else earned.17California Legislative Information. California Code LAB 201 An employee who quits with at least 72 hours of notice is owed final pay on their last day; without notice, you have 72 hours to deliver it.18Department of Industrial Relations. Paydays, Pay Periods, and the Final Wages
Miss these deadlines and waiting time penalties begin: one full day of the employee’s pay for every calendar day the wages remain unpaid, up to 30 days.19Department of Industrial Relations. Final Pay For a worker earning $25 per hour on an eight-hour schedule, that cap alone is $6,000, on top of the wages owed.
Payroll Taxes
Beyond wages, you owe layered payroll taxes:
- Social Security (FICA): 6.2% from you and 6.2% from the employee on wages up to $184,500. Medicare adds 1.45% from each side with no cap.20Internal Revenue Service. Household Employer’s Tax Guide
- State Disability Insurance (SDI): 1.3% withheld from employee wages in 2026 with no wage ceiling, remitted to the EDD. SDI funds disability benefits and Paid Family Leave.
- Unemployment Insurance (UI): New employers pay 3.4% on the first $7,000 of each employee’s annual wages, adjusting over time based on claims history.21Employment Development Department. 2026 California Payroll Taxes
- Employment Training Tax (ETT): 0.1% on the first $7,000 per employee for most employers.
- Federal unemployment (FUTA): 6.0% on the first $7,000, reduced to an effective 0.6% for most employers through a credit for timely state UI payments.
What Changes at Five Employees
Anti-Discrimination Coverage
At five employees, FEHA’s discrimination provisions apply. The law prohibits workplace discrimination based on race, sex, age, disability, religion, national origin, gender identity, sexual orientation, and several other protected characteristics.
Harassment Prevention Training
At the same threshold, you must provide sexual harassment prevention training to every California-based employee. Supervisors need at least two hours, non-supervisory employees at least one hour. Training must cover harassment, abusive conduct, and harassment based on gender identity, gender expression, and sexual orientation. New hires must be trained within six months, and everyone retrained every two years.22California Legislative Information. California Code GOV 12950-1 The California Civil Rights Department offers free online courses that meet both the one-hour and two-hour requirements.23California Civil Rights Department. Sexual Harassment Prevention Training Information For Employers
California Family Rights Act
The California Family Rights Act covers employers with five or more employees, far below the 50-employee threshold for federal FMLA.24California Civil Rights Department. Family Care and Medical Leave Quick Reference Guide An eligible employee can take up to 12 weeks of job-protected, unpaid leave in a 12-month period for their own serious health condition, to care for a family member with one, or to bond with a new child. To qualify, the employee must have worked for you for at least 12 months and logged at least 1,250 hours in the prior year.25California Civil Rights Department. Family Care and Medical Leave and Pregnancy Disability Leave
CFRA leave itself is unpaid, but employees may receive partial wage replacement through Paid Family Leave or State Disability Insurance through the EDD. You cannot require employees to exhaust those benefits before taking CFRA leave, though you can require them to use accrued vacation concurrently.
Fair Chance Act
At five employees, you cannot ask a job applicant about their criminal history before making a conditional offer. If you later decide to withdraw the offer based on a background check, you must conduct an individualized assessment weighing the nature of the offense, how much time has passed, and its relevance to the job, and give the applicant a chance to respond before finalizing the decision.26California Civil Rights Department. Fair Chance Act
What Changes at 15 Employees
Businesses with 15 or more employees must include a pay scale in every job posting, including those placed through third-party platforms. The pay scale is the salary or hourly wage range you reasonably expect to pay. A first violation can be corrected without penalty by updating the postings; later violations carry fines of $100 to $10,000 per posting.27California Legislative Information. Senate Bill 1162
What Changes at 20 Employees and Beyond
Separated employees must receive written notice of their rights to unemployment insurance and continuation of health coverage. Employers with 20 or more employees are subject to federal COBRA.28U.S. Department of Labor. FAQs on COBRA Continuation Health Coverage California’s Cal-COBRA extends similar rights for employers with two to 19 employees.
Federal FMLA applies only to employers with 50 or more employees within a 75-mile radius.29U.S. Department of Labor. Family and Medical Leave (FMLA) Most California small businesses never hit that threshold, which leaves CFRA’s five-employee trigger as the operative family leave rule.
Record Retention
Keep records long enough to defend what you did:
- Personnel and hiring records: at least one year from the date of creation, or one year from termination for former employees.30U.S. Equal Employment Opportunity Commission. Recordkeeping Requirements
- Payroll records: at least three years under federal age discrimination and wage-and-hour rules.30U.S. Equal Employment Opportunity Commission. Recordkeeping Requirements
- Form I-9: three years from the hire date or one year after employment ends, whichever is later.13U.S. Citizenship and Immigration Services. 10.0 Retaining Form I-9
- Benefit plans and seniority systems: the full period the plan is in effect plus at least one year after it ends.
If an employee files a discrimination or wage claim, preserve all related records until the matter is resolved, whatever the normal retention schedule says. A consistent policy from day one prevents the gaps that become expensive during an investigation.