How to Hire Employees in California: Setup, Paperwork, and Payroll

Hiring employees in California means lining up several things before anyone starts work: a federal and state tax account, a workers’ compensation policy, a written safety plan, and a packet of forms and notices the employee signs or receives on day one. You then report the hire to the state within 20 days. The state’s minimum wage is $16.90 per hour as of January 1, 2026, and California’s wage, break, and classification rules go well beyond the federal baseline.¹

Work through the steps below in order. Skipping the setup pieces (tax registration, workers’ comp, safety plan) is where new employers get hit hardest, because some of those penalties start the moment you pay the first dollar of wages.

Step 1: Decide Whether the Worker Is Actually an Employee

California presumes every worker is an employee. If you want to treat someone as an independent contractor, Labor Code Section 2775 puts the burden on you to prove it under the ABC test, which came out of the Dynamex decision.² All three prongs must be satisfied:

The worker is free from your control over how and when the work gets done.
The work falls outside the usual course of your business. A software company hiring a plumber passes this prong; hiring a freelance coder to build the product likely does not.
The worker is engaged in an independently established trade or business of the same type.

Miss any one prong and the person is an employee. Some licensed professions (doctors, lawyers, architects, engineers, accountants, real estate agents, insurance brokers, and certain construction roles) fall outside the ABC test and are judged under the older Borello standard instead, but those exemptions have their own conditions.³

Willful misclassification carries civil penalties of $5,000 to $15,000 per worker, rising to $10,000 to $25,000 per worker if the state finds a pattern.⁴ Back payroll taxes, unpaid benefits, and interest come on top. If you’re close to the line, treat the worker as an employee.

Step 2: Get a Federal EIN and a California Employer Account Number

You need two tax IDs before running payroll.

The federal Employer Identification Number comes from the IRS. Apply online and you get it immediately.⁵ Without it, you can’t register at the state level or open most business bank accounts.

The California Employer Account Number is an eight-digit number from the Employment Development Department. Register through the EDD’s e-Services for Business portal or file Form DE 1. You have 15 days from the point you pay more than $100 in wages in a calendar quarter.⁶

Step 3: Buy Workers’ Compensation Insurance

Every California employer must have workers’ comp coverage in place before the first employee’s first day. One employee is enough to trigger it. There is no small-business exemption and no grace period.⁷

You can buy a policy from a licensed carrier, from the State Compensation Insurance Fund, or self-insure if you meet the state’s financial requirements. Premiums vary by industry classification and claims history. The policy covers medical treatment, rehabilitation, and temporary disability benefits for on-the-job injuries, and it shields you from most civil lawsuits over workplace injuries.

Operating without coverage is a misdemeanor. Penalties include up to one year in county jail, a fine of at least $10,000 or double the premium you should have paid (whichever is greater), or both.⁷ The state can also issue a stop order shutting down your operations until you obtain a policy.⁸

Step 4: Write an Injury and Illness Prevention Program

Cal/OSHA requires every employer, starting at one worker, to maintain a written Injury and Illness Prevention Program.⁹ The plan has to name who is responsible for safety, explain how you’ll communicate hazards to employees, describe how injuries get investigated, and lay out how unsafe conditions are corrected. Employees are entitled to see the written plan within five business days of asking and to one free printed copy per year. For a small office, the document can be short, but it has to exist in writing before the employee starts.

Step 5: The Day-One Paperwork

Several forms and notices change hands on or before the employee’s first day.

Form I-9

Every new employee completes Form I-9. You physically examine original identity and work-authorization documents within three business days of the start date, or on day one if the person is hired for fewer than three days.¹⁰

Federal W-4 and California DE 4

You need both. Since 2020, the federal W-4 no longer controls California withholding, so the DE 4 is required to determine state income tax withholding on each paycheck.¹¹

Wage Theft Prevention Act Notice

Labor Code Section 2810.5 requires a written notice to every non-exempt employee at the time of hire. It must state:

Rate of pay and whether it’s hourly, salary, piece-rate, or commission
The regular payday
Your workers’ comp carrier’s name, address, and phone number
Your legal business name, any DBAs, and your main office address
Paid sick leave accrual information

The notice has to be in the language you normally use with the employee for work matters.¹²

Paid Sick Leave

California requires at least five days or 40 hours of paid sick leave per year. Under accrual, employees earn at least one hour per 30 hours worked. You can front-load the full 40 hours at the start of the year instead. Total accrued balance may be capped at 80 hours and annual use at 40 hours. The specifics belong in the Section 2810.5 notice.¹³

Step 6: Report the New Hire Within 20 Days

Within 20 calendar days of the first day of work, report the hire to the California New Employee Registry. File electronically through e-Services for Business or submit Form DE 34 by mail or fax. The report includes the employee’s full name, Social Security number, home address, and start date, along with your business name, address, and California Employer Account Number.¹⁴

Miss the deadline and you owe $24 per unreported employee. If the state finds you and the worker agreed not to report, the penalty is $490.¹⁴ The same 20-day clock applies to any independent contractor you pay $600 or more in a year, if that contractor is an individual, sole proprietor, or single-member LLC.¹⁵

What You’ll Pay in Payroll Taxes

California has four state payroll taxes. Two come out of your pocket, two come out of the employee’s.

Unemployment Insurance: employer-paid. New employers pay 3.4% on the first $7,000 of each employee’s annual wages. Your rate adjusts after two to three years based on claims history.
Employment Training Tax: employer-paid, on the same $7,000 wage base.
State Disability Insurance: employee-paid, but you withhold it. The 2026 rate is 1.3% of all wages with no cap.
California Personal Income Tax: employee-paid, withheld based on the DE 4.

UI and ETT rates come from the EDD when you register.¹⁶ Federal payroll taxes stack on top: Social Security at 6.2% and Medicare at 1.45%, each matched by the employer.¹⁷

Wage and Hour Rules From Day One

These apply the moment the employee clocks in, and they’re among the most common sources of employment lawsuits in California.

Minimum wage. $16.90 per hour statewide as of January 1, 2026. Many cities and some industries set higher local minimums.¹

Overtime. California uses daily overtime, not just weekly. Non-exempt employees get 1.5x the regular rate for hours beyond eight in a day or 40 in a week, and 2x for hours beyond 12 in a day. On the seventh consecutive workday in a workweek, the first eight hours are at 1.5x and anything beyond is at 2x.

Meal and rest breaks. An unpaid 30-minute meal break when working more than five hours, a second meal break beyond 12 hours, and a paid 10-minute rest period for every four hours worked. Miss a required break and you owe one extra hour of pay at the regular rate for each workday the break was missed.¹⁸

Rules That Apply During Hiring Itself

Pay Scale in Job Postings

Employers with 15 or more employees must include the pay scale (the salary or hourly range you reasonably expect to pay) in every job posting. The requirement extends to any listing you give a third-party job board, which must display the range too. Out-of-state companies have to comply for roles that will be performed in California. Below the 15-employee threshold, any current employee can still ask for the pay scale for their own position, and you have to provide it.¹⁹

Background Checks and the Fair Chance Act

You cannot ask about criminal convictions on the application or at any point before extending a conditional offer of employment.²⁰ After the offer, a background check is permitted, but arrests that didn’t lead to conviction, completed diversions, and sealed or expunged records are off-limits.

If a conviction appears and you want to pull the offer, you follow a specific process:

Conduct an individualized assessment weighing the seriousness of the offense, how much time has passed, and the conviction’s relevance to the job.
Send written preliminary notice that you’re considering rescinding the offer, with a copy of the background report.
Give the applicant at least five business days to respond, plus another five business days if they dispute the report’s accuracy.
Issue a final written decision explaining how to challenge it or file a complaint with the Civil Rights Department.

Blanket policies that exclude anyone with a certain type of conviction are not allowed. Each decision has to be individualized.²⁰

Training and Postings Once You’re Running

At five or more employees, you must provide sexual harassment and abusive conduct prevention training. Non-supervisory employees get one hour, supervisors get two, and the training repeats every two years. New hires must be trained within six months. Temporary or seasonal employees hired for less than six months must be trained within 30 calendar days of their start date or within their first 100 hours of work, whichever comes first.²¹

Required workplace postings include minimum wage, paid sick leave, payday schedules, workers’ comp benefits, safety and health protections, whistleblower rights, and the Industrial Welfare Commission wage order for your industry. You also have to deliver an annual Workplace Rights Notice to all employees by February 1. The Department of Industrial Relations publishes the full list and downloadable templates.²²

Record Retention

Keep each employee’s personnel records for at least three years after separation. That includes hiring documents, performance evaluations, disciplinary notices, and written agreements. Current and former employees have the right to inspect and copy their files on request.²³ Federal rules add their own clock on I-9s: three years after the hire date or one year after the last day of work, whichever is later.

1
California Department of Industrial Relations. Minimum Wage Frequently Asked Questions
2
California Legislative Information. California Labor Code 2775
3
California Department of Industrial Relations. Independent Contractor Versus Employee
4
California Legislative Information. California Labor Code 226.8
5
Internal Revenue Service. Employer Identification Number
6
Employment Development Department. Am I Required to Register as an Employer?
7
Justia Law. California Labor Code 3700-3709.5
8
California Legislative Information. California Labor Code 3710.1
9
California Division of Occupational Safety and Health. Developing Your Workplace Injury and Illness Prevention Program
10
U.S. Citizenship and Immigration Services. Instructions for Form I-9, Employment Eligibility Verification
11
Employment Development Department. Employee’s Withholding Allowance Certificate (DE 4)
12
California Legislative Information. California Labor Code 2810.5
13
California Department of Industrial Relations. California Paid Sick Leave: Frequently Asked Questions
14
Employment Development Department. California’s New Employee Registry
15
Employment Development Department. Independent Contractor Reporting
16
Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging Values
17
Employment Development Department. 2026 Federal and State Payroll Taxes
18
California Department of Industrial Relations. Wages, Breaks and Retaliation
19
California Legislative Information. California Labor Code 432.3
20
Civil Rights Department. Fair Chance Act: Criminal History and Employment
21
Civil Rights Department. Sexual Harassment Prevention Training for Employees
22
California Department of Industrial Relations. Workplace Postings
23
California Department of Industrial Relations. Personnel Files and Records