The Employer’s 2024 Guide to Hiring Employees in California

Feli Oliveros

As a small business owner, hiring your first employee can be nerve-wracking. But by doing your research on payroll taxes, labor laws, and onboarding best practices ahead of time, you’ll be better prepared to tackle all the responsibilities that come with being an employer in the Golden State.

To guide you through this process, here are the six steps to follow when hiring employees in California:

Do your research

Before you take any action, it’s important to know the employment and labor laws that apply to your business—especially since California is well-known for its laws and regulations protecting workers. Use the information in the following sections to put together a plan and timeline for hiring your first employees. 

Determine whether you need employees or independent contractors

Before embarking on the hiring process, first, you’ll want to determine whether you need to hire employees at all. Depending on the work you’re looking to hand off, independent contractors might work just fine. It’s important to make this distinction early on because the type of workers you bring to your team will also affect your responsibilities as a business owner. 

Independent contractors operate separately from the companies they work with. They control how and when they perform their services for clients. Employees, on the other hand, work on a regular basis per their employer’s instructions when it comes to how, when, and where the work is completed—but they tend to receive more worker benefits and legal protections than their contractor counterparts. 

Our article on the differences between independent contractors and employees outlines what these differences could mean for your business. 

Because hiring contractors is often cheaper than retaining employees, some companies have tried to cut costs by misclassifying their employees. However, California employers that defy these regulations face severe penalties—including fines of up to $25,000 for each misclassified worker. 

Understand your hiring costs and tax liability as an employer

Before you hire employees, you’ll need to calculate how much it’ll cost to retain them so you can prepare your budget. According to the Small Business Administration, the cost of adding a new employee to your team generally costs 1.25 to 1.4 times their salary. 

In addition to compensation, benefits, and recruiting expenses, you’ll also need to factor employment taxes into your calculations as well. Here’s what you should know about the payroll taxes you’ll be responsible for as a California employer: 

  • Businesses with California employees must withhold federal and state income taxes from each employee’s paychecks. The amount employers withhold depends on the employee’s withholding allowances and wages.
  • The taxes under the Federal Insurance Contributions Act (FICA) cover Social Security and Medicare taxes. In 2024, the Social Security tax rate is 6.2% for both employers and employees. The Medicare tax rate for employers and employees is 1.45%. 
  • The state unemployment insurance (SUI) tax rate for new employers is 3.4% of the first $7,000 of each employee’s wages, with a maximum tax of $434 per employee per year. 
  • Under the Federal Unemployment Tax Act (FUTA), employers pay 6% on the first $7,000 of each employee’s wages every year. Businesses that pay their SUI taxes in full and in a timely manner can get a credit of up to 5.4% on their FUTA taxes. 
  • California employers also pay a 0.1% employment training tax (ETT) on the first $7,000 of each employee’s wages. 
  • California’s state disability insurance (SDI) tax covers paid family benefits as well as benefits for employees who can’t work due to a non-work-related illness, injury, or pregnancy. In 2024, the SDI withholding rate is 1.1%. 

Use Gusto’s hiring calculator to help you determine whether hiring an employee in California is within your budget. 

Review California labor laws

Prospective employers should know the hiring and employment regulations they’ll be required to follow in California, as the Golden State provides workers with many protections that may not be applicable in other states. Here are some important laws you need to know:

  • Minimum wage: California’s minimum wage will increase to $16 on January 1, 2024. Some areas in the state have even higher minimum wages, so check with your local authorities. 
  • Overtime pay: Non-exempt employees receive 1.5 times their regular rate of pay when they work over eight hours in a day, over 40 hours in a week, or after working seven days in a row. They receive double pay after working for 12 hours in a day or over eight hours on their seventh consecutive work day. 
  • At-will employment: Unless otherwise stated in the employment contract, employees in California can be fired without cause. Employees can also leave at any time, without prior notice. 
  • Child labor: In California, nearly all minors must have a permit to work. The occupations and number of hours minors are allowed to work are heavily restricted as well. For more information on the employment of minors in the state, visit the Department of Industrial Relations website
  • Paid leave: Eligible employees are entitled to paid family leave and sick leave. Employers can choose to provide workers with paid time off, but it’s not mandatory. Any vacation pay benefits provided by employers never expire, and they are paid out if the employee leaves or gets fired. 
  • Unpaid leave: Eligible employees are entitled to family and medical leave, as well as leave for bereavement, pregnancy disability, domestic violence, school activities, jury duty, voting, drug and alcohol rehabilitation, and more.
  • Discrimination: California’s Fair Employment and Housing Act (FEHA) prohibits employers from discriminating against job applicants or employees based on their age, disability, gender, marital status, medical condition, nationality, race, religion, sexual orientation, or military status. 
  • Pay equity: State law makes it illegal to pay employees different wages for similar work based on their ethnicity, race, or sex. Employers can’t stop employees from sharing wage information with each other, and they also can’t retaliate against employees who do. 
  • Noncompete agreements: Employers are prohibited from requiring and enforcing noncompete agreements with employees, as these contracts are void in the state. 
  • Ban the box: Because of the Fair Chance Act, it’s illegal for employers to ask job applicants about their conviction history. Employers can’t ask about or consider a candidate’s criminal history until the candidate receives a conditional job offer. 

Keep in mind that the list above doesn’t cover all of the state’s labor and employment laws, and that there may be other laws specific to your industry that you need to be aware of. Federal and state regulations can change over time as well, so make sure to check with the US Department of Labor and California’s Department of Industrial Relations regularly for any changes. 

Take care of logistics

Get a federal employer identification number from the IRS

Before you can hire your first employee, you’ll need to register for an employer identification number (EIN). This number enables the federal government to identify your business on tax forms and other documents you submit to them. 

If your business is structured as a partnership, multi-member limited liability company (LLC), C corporation, or S corporation, chances are you already have an EIN. But if you don’t have one yet, you can get one by completing the online EIN application provided by the IRS

Visit the IRS website to learn more about federal employer identification numbers. 

Register with the California Employment Development Department 

Most California businesses must register for an employer payroll tax account number with the Employment Development Department (EDD) within 15 days of meeting the following conditions:

  • Hiring at least one employee
  • Paying more than $100 in wages in a calendar quarter

Register your business through the state’s e-Services for Business portal. Once you receive your identification number, you’ll be able to pay all your state employer taxes—including unemployment insurance, income withholding, state disability insurance, and employment training taxes—through this portal. 

You may also be required to register with your county or city, depending on where your business is located. Check with your local tax authorities for more information. 

Get workers’ compensation 

Workers’ compensation insurance pays for employee medical expenses and lost wages if they get injured or sick on the job. In the state of California, businesses are required to get workers’ compensation if they hire one or more employees. 

California employers purchase workers’ compensation through the State Compensation Insurance Fund (also known as the State Fund) or from a licensed insurance company. You can also self-insure if you receive authorization from the state. 

Because this process can take some time, it’s important to get started on this before you begin hiring. 

For more information on getting workers’ compensation in California, visit the state’s Department of Insurance website. Alternatively, review the requirements and the application process for self-insurance on the Department of Industrial Relations website

Get organized

Business owners must keep their employment records in a safe and secure location, as different government agencies may require you to provide them during an audit. Make sure to set up your organizational system and gather your paperwork ahead of time, so you can hit the ground running once you’ve made your first hire. 

Below is a list of documents the state of California requires you to keep for each employee: 

  • Tax forms
  • Verification of eligibility to work
  • Benefits forms
  • Withholding agreements
  • Performance evaluations
  • Other agreements made between the employer and employee

Employers must also keep other employment-related records for a certain number of years. This includes employee applications, referral records, and job applicant demographic data, which must be kept for at least four years. 

More information on the state’s personnel file requirements can be found on the Department of Industrial Relations website

Prepare your business for hiring

Put together an employee handbook

Although an employee manual or handbook isn’t a requirement for California employers, having one for your business sets your employees up for success. A handbook that clearly outlines your rules and policies establishes expectations early on and prevents misunderstandings. It can also help prevent costly California employment law penalties and employee lawsuits. 

Note that, if you choose to create an employee handbook, certain sections should be included in it. Below is a list of some of these policies: 

You may also find it helpful to have other information in your employee handbook, including: 

  • Employee benefits policies and procedures
  • Accommodations for employees with disabilities
  • Payment of wages and overtime
  • Business expense reimbursements
  • Dress code
  • Company holidays
  • At-will employment
  • Drug and alcohol use
  • Telecommuting and remote work

Prepare a compensation package

You’ll also want to put together a compensation package for your new hires, particularly if you plan on hiring full-time employees. If you need help, check out our guide to creating a compensation model

Some employee benefits—like paid sick leave and employee expense reimbursements—are required by law. The voluntary benefits you offer are where you can stand apart from your competitors and attract top talent, as the right mix of perks shows prospective applicants that you care about investing in your workforce. 

For inspiration, some of the best employee benefits in recent years include: 

  • Affordable health insurance plans
  • Flexible work hours and schedules
  • Remote work arrangements 
  • Employee development programs
  • Four-day work weeks 
  • Wellness programs
  • Paid volunteer days
  • Employee discounts

Once you’ve decided on the benefits you’d like to offer to new employees, follow our guide on setting up a benefits program for your small business

Advertise the job opening

To create an accurate and compelling job description, you need to understand what you’re looking for in the ideal candidate and what competitors are offering in their own job listings. 

First, consider your criteria for the role:

  • Does the work need to be completed in person, or are you open to hiring remote employees?
  • What skills and experience does a candidate need to be successful in the position?
  • What “nice-to-have” characteristics set apart a good candidate from a great candidate? 

Then, take a look at the job listings of other companies in your industry to see how you can give your business an edge in the hiring process. 

For every job opening, include the following details in your posting: 

  • Job title
  • Type of employee (full-time, part-time, seasonal, temporary)
  • Job location
  • Expected hours of work per week
  • Wage or salary range
  • Educational requirements, if applicable
  • Skills needed for the role

Including information on your employee benefits and company culture will also help prospective applicants determine whether the role is a good fit for them—which ultimately saves you time in the long run. 

Once you’re finished with your job posting, your first thought might be to publish it on sites like Indeed and Glassdoor. But don’t ignore your community’s resources either, especially if you plan on hiring locally. Community centers, job fairs, newspapers, and your Chamber of Commerce are great places to advertise jobs to candidates in your area. 

Assess and interview top candidates 

Once you start receiving job applications, it’s time to assess them and invite your top candidates to interview with you. 

Think carefully about the information you’ll need from your candidates, then tailor your interview process accordingly. If you’re looking for a marketing coordinator, for instance,

you might ask them to complete a few short assessments after the initial interview to get a sense of their expertise and thought process.

No matter how many applications you receive, make an effort to respond to each candidate, even if it’s just to say you won’t be moving forward with an interview. After all, the application process is also the first impression many candidates will have of your business. Showing courtesy to applicants isn’t just good for your employer branding—it can keep the door open with candidates you’d like to recruit in the future too. 

Hire and onboard your first employee

Now that you’ve found your first employee, here’s what you’ll need to do during the onboarding process to keep your business compliant with federal and state regulations. 

Send the offer letter

Many businesses extend job offers to candidates over the phone, but after you lay out the details of the offer and get confirmation from your candidate, you should send a formal offer letter to get these terms in writing. Make sure to include the following: 

  • Job title
  • Duties and responsibilities of the position
  • Start date
  • Wage or salary details
  • Expected work hours
  • Outline of employee benefits, if applicable
  • Conditions of employment, if applicable
  • Onboarding requirements 

Once your candidate receives the letter, give them a few days to review your terms of employment and sign the document. 

Conduct a background check

At this point, you may also decide to run a background check. Employers often use background checks to do their due diligence and verify the information provided by the candidate during the interview process. 

There are some guidelines you’ll need to follow when conducting background checks:

  • Employers have to notify candidates in writing that they’ll be performing a background check. You’ll also need to receive written permission from them before you run the check.
  • Employers can’t use the results to discriminate against candidates based on a protected category (like age, disability, gender, religion, or race). If you request a background check for one applicant, you must do so for all applicants.
  • If you extend a job offer to a candidate but withdraw it because of the background check results, you must provide the candidate with a written explanation, a copy of the results, and at least five business days to respond to the notice. 

Learn about California’s background check regulations on the Department of Human Resources website

Collect new hire forms from your employee

Federal and state regulations mandate that new hires must sign and return new hire paperwork to their employer by their first day on the job. These forms include: 

  • IRS Form W-4: Determines how much you’ll need to withhold in federal income taxes from your employee’s paycheck
  • California DE 4 Withholding Certificate: Calculates your employee’s state withholding taxes
  • Form I-9: Verifies that your new hire is eligible to work in the US (keep this form in your records for at least three years after your employee’s start date or until a year after their employment ends)
  • Voluntary Self-Identification of Disability form: Allows employees to voluntarily disclose whether they have a disability (required for federal contractors and subcontractors)

In addition to the required forms above, you’ll want to collect the following from each new hire:

  • Employment contract 
  • Employee personal data form, including the employee’s contact information, emergency contact information, and Social Security number
  • Benefit enrollment forms, if applicable
  • Direct deposit authorization form, if applicable

Make copies of each of these documents for your records and keep them in your employee’s personnel file.

Provide the required documents to your new hire

California employers are required to furnish certain forms and documents to new employees as well. These include: 

Note that there may be additional documents required by your industry, city, or county, so you should check with state and local authorities for any additional requirements. Also make sure to check back every year to ensure you’re up-to-date with the latest pamphlets and guidelines. 

Report the new hire to the California New Employee Registry program

Finally, California employers must report every new hire and rehired employee to the state’s new Employee Registry program within 20 days of the employee’s start date. 

Submit the new hire report online through the EDD e-Services for Business portal. All you need is your business information—including your EIN and payroll tax number—as well as your employee’s full name, home address, Social Security number, and start date. 

Get more information on California’s new hire reporting process and requirements on the EDD website

Set up payroll

Now that you’ve hired your first employee, you’ll need to set up payroll so your team gets paid and your business stays compliant. Because manually running payroll can be time-consuming, we recommend working with a payroll provider instead. 

No matter what method you choose, you can follow Gusto’s guide to setting up payroll for the first time for a straightforward setup process. If you’ll be hiring remote workers, make sure to learn how to pay out-of-state employees as well. This process can be complicated, so you may want to schedule an appointment with your accountant so they can walk you through the process and answer any questions you might have. 

Put up labor law posters and notices in the workplace 

The Department of Labor and the state of California requires employers to display labor law notices in the workplace so employees understand their rights at work. These posters should be hung in areas where employees and job applicants can easily see them, such as your break room. 

Posters and notices required by the federal government include: 

The following list covers signage mandated by the state of California: 

Keep in mind that the lists above aren’t exhaustive. Depending on your municipality, industry, business activities, and number of employees, you may have additional poster and notice requirements. Use the US Department of Labor’s Poster Advisor to determine which federal posters your business must display. You can also check California’s workplace posting requirements on the Department of Industrial Relations website

Federal and state agencies may make changes to these notices at any time, so you’ll need to review them every year to ensure you stay compliant with the latest regulations. 

Simplify your hiring process with Gusto

The truth is, hiring your first employee won’t be a walk in the park. But with Gusto’s all-in-one hiring, onboarding, and payroll software for business owners, you can go from recruiting to onboarding candidates quickly and easily. And when you’re ready to scale your business, our platform will grow alongside you. 
Learn how Gusto can help streamline your business operations by creating an account today.

Feli Oliveros Feli Oliveros is a freelance finance and business writer with experience covering personal and small business finance. In 2015 she graduated from UCLA, where she earned her bachelor’s degree in English and minored in Anthropology.
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