California Payroll Services and Regulations

Gusto Editors

Whether you’re just getting started or you’ve been in business for a while, using a payroll service provider like Gusto can help you manage paychecks and stay up to date on local, state, and federal regulations, as well as provide overall human resources support. Here’s what you need to know before issuing your next paychecks in California.

Key California regulations payroll professionals need to know

California minimum wage

California’s minimum wage was formerly based on the number of employees a business had. But as of the start of 2023, it’s now $15.50 per hour for everyone, though it’s higher in many cities and counties, such as Berkeley and San Francisco in Northern California and Los Angeles and San Diego in Southern California. If your local government sets a higher wage, then you need to follow the higher standard.

California does not have a separate minimum wage rate for minor vs. adult employees, nor can employers use a worker’s tips as a credit toward paying the full hourly minimum wage.

California pay stubs

With each paycheck, you’ll need to provide a pay stub that lists the following information:

  • The pay period’s start and end dates
  • The total hours worked
  • The total piece-rate units earned and the 
  • The amount of accrued sick time
  • The amount of gross wages earned, separated by regular and overtime
  • Deductions held for taxes and benefits
  • The pay rate
  • The amount of net wages earned
  • The name of the employee and the last four digits of their SSN
  • The name and address of your business

California pay periods

California employees must be paid at least twice each month using one of these schedules:

  • Wages earned between the 1st and the 15th of the month must be paid by the 26th of the month.
  • Wages earned between the 16th and the end of the month must be paid by the 10th of the following month.
  • Pay periods paid on a more frequent basis, must be paid within seven calendar days of the end of the pay period.
  • Paydays must be designated in advance and posted

Your business type could influence the pay period you choose, so visit California’s Department of Industrial Relations for more information.

Determining time worked in California

In California, a “workday” is defined as any consecutive 24-hour period that begins at the same time each day, and a “workweek” is any consecutive seven-day period that begins on the same day each week. Businesses need to maintain time sheets, since they must track the start and end time of each shift, plus the start and end time of meal breaks.

Overtime pay and tracking in California

You need to track daily and weekly overtime hours if your employees work more than eight hours in a workday or 40 hours in a workweek, or if they work the seventh consecutive day after working six consecutive days in a workweek. Nonexempt employees in California are eligible for 1.5 times to double their regular rate of pay for overtime compensation. Make sure you include overtime details on the employee’s pay stub, and pay overtime wages in the same payroll period as regular wages.

Final wage payment in California

Employees who are laid off or fired must be paid immediately. If the employee voluntarily leaves, they must be paid within 72 hours or immediately if the employee gave at least 72 hours notice. This includes the monetary value of any unused vacation or paid time off that has accrued. (Note: This doesn’t include sick leave, unless the sick leave is part of a paid time-off policy.)

Payroll taxes in California

California has four types of payroll taxes, but only two of them are withheld from employee paychecks: the state personal income tax and the state disability insurance tax.

California benefits

In addition to federal benefits such as Social Security and the Family and Medical Leave Act (FMLA), employees in California are entitled to the following benefits:

  • Paid sick leave: Whether your workers are full-time, part-time, or temporary, all employees earn one hour of paid sick leave for every 30 hours worked, once they’ve put in at least 30 days with the company. Paid sick leave must carry over from year to year, but employers can place a cap on accrual of 48 hours (or six days). This sick leave can be used for personal sick time or to take care of a sick family member.
  • Workers’ compensation: All businesses, regardless of size or type of business, must provide workers’ compensation insurance.
  • Health care: According to the Patient Protection and Affordable Care Act (ACA), businesses with 50 or more full-time (or equivalent) employees must offer health insurance benefits. California employers can withhold these costs from employee paychecks.
  • Voting: California employers must offer up to two hours of paid time off so employees can fulfill their civic duty.

Finding the right payroll provider in California—Why Gusto?

Finding a payroll specialist or solution comes with several considerations beyond pricing to make a choice that works best for you and your company. When deciding who should run payroll, you need to also consider if you want to handle it in-house or if outsourcing is for you. The latter could require using a Professional Employer Organization (PEO), which has another set of pros and cons you’ll need to evaluate based on your needs.

Gusto, which is not a PEO, offers online payroll solutions, other business solutions like workforce management, HR solutions and tools, and benefits administration like health insurance and workers comp, all rolled into one easy-to-use platform. Onboard, insure, support your entire team, and provide employee payroll on time with just a few clicks.

With our platform, Gusto’s HR services and payroll company helps automate your startup or small business needs and obligations to the state of California, your city or jurisdiction, and the federal government.

I love the ease of use. Gusto breaks everything down so that it’s easy for a non-expert to understand!

Emily Puente, Owner of Emily K. Puente Photography

1. Unlimited Payroll

Other platforms might limit how many times you can run payroll, but with Gusto, you can run payroll as many times as you need. Our flexible payroll management platform accommodates your team’s payroll needs, no matter the size or location of your business. Run payroll for your team with just a few clicks—including contractors, employees paid at different rates, hourly and salaried team members, and employees in all 50 states. You can also set pay schedules, set up direct deposit, and leverage dozens of customizable options to align Gusto’s payroll processing services with what is best for your business.

2. Tax filings and payments

Gusto works seamlessly with local, state, and federal authorities to ensure the details are handled properly. With our tax services, you can meet your tax-filing and payment obligations with just a few clicks, without leaving Gusto. We’ll handle onboarding for your new hires directly into our system and report their hiring to the government on your behalf. At the end of the year, you can compile and send all wages, tax liabilities, and payments made under the Federal Unemployment Tax Act (FUTA) to the government. We keep the payroll system up to date to help ensure you don’t miss a tax payment.

3. Forms and reports

Gusto auto-generates W-2s, 1099s, quarterly tax forms, year-end tax forms, and customized payroll reports—all without extra fees. We send copies of W-2 and 1099 forms to your team, and thanks to e-file, e-sign, and e-fax technologies, you can avoid the hassle of scanning, signing, and chasing down stragglers when you need to file with the Internal Revenue Service (IRS).

Advanced payroll features through Gusto let small business owners like you easily generate and download reports right from the platform. Bookkeeping with Gusto is simple since you can search for and compile reports for many segments, at no additional cost, including:

  • Payroll history
  • Contractor payments
  • Bank transactions
  • Paid time off
  • Tip credits
  • And more

4. Employee benefits

Take care of your teams and offer them the best benefits you can, which will also help with retention—all without leaving our platform. You can offer and administer your full suite of employee benefits through Gusto, including:

  • Health insurance
  • 401(k) retirement savings
  • Flexible spending accounts

Frequently asked questions about payroll in California

What does a California payroll provider need to track?

Payroll professionals in California need to track hours worked and money earned, including overtime. Timekeeping for sick leave and vacation need to be tracked as well, since employees are eligible for payout of any unused sick and vacation days if they leave the company.

How often do employees in California get paid?

By state law, employees should receive a paycheck at least two times per month. Each company can choose its own pay schedule. Wages earned between the 1st and the 15th of the month must be paid by the 26th of the month, while wages earned between the 16th and the end of the month need to be paid by the 10th of the following month. If payroll is conducted in a different payroll period, such as weekly or biweekly, employers must pay their employees within seven calendar days of the end of the payroll period. Overtime must be paid by the end of the next payroll period. There are separate, specific regulations regarding select industries in California, including the motion picture industry and events production.

What types of payroll taxes are paid in California?

Employers in California pay four separate taxes: the California personal income tax (PIT), the employment training tax (ETT), the unemployment insurance tax (UI), and state disability insurance tax (SDI). This is in addition to federal payroll and income taxes that must be paid by all US employers. To determine withholdings and calculate take-home pay, try these tools:

Do employees in California pay state taxes?

Yes, employees in California pay the California personal income tax. That typically ranges from 1% to 13.30%. (Note: Technically, the upper end is 12.30%, but the 13.30% includes the 1% surcharge for those who earn $1 million and above.) Employers withhold personal income taxes from employee paychecks, along with the state disability insurance tax, which is 0.9% up to the taxable wage limit of $153,164 for each calendar year (with a max of $1,378.48 per employee).

How much does an employer pay in payroll taxes in California?

Of the four payroll taxes in California, two are paid by the employer: the unemployment insurance tax and the employment training tax. The 0.1% employment training tax is up to the $7,000 taxable wage limit per employee. The unemployment insurance tax calculation is a bit more complicated. It is also based on the $7,000 taxable wage limit, but employers can pay between 1.5% and 6.2% for unemployment insurance tax depending on whether their new employers are assigned a rate of 3.4% for their first two or three years in business.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
Back to top