California paychecks and taxes
If you’re a California-based employer new to the world of payroll, you’re probably learning very quickly that it’s about a lot more to California paychecks than simply giving your employees a check for their earnings. There’s also paying several employer taxes, withholding many different employee taxes, and keeping track of many state and federal laws.
automated payroll system
can help you navigate this process.
If you’re going at it alone, here’s what you need to know about both California state and federal taxes that should be calculated in your employee paychecks, plus some laws you should be aware of.
What state payroll taxes do I need to know about?
There are four state payroll taxes in California that you need to know. Two are employer contributions, meaning you pay them. The other two are withheld from your employees’ wages.
Keep in mind that not all types of employers or workers are subject to all four taxes. Use
to determine which taxes apply to your business.
What federal payroll taxes do I need to include in each paycheck?
There are also a few federal taxes that all employers must pay or withhold.
Anything else about California paychecks that I need to know?
Deductions to include on paychecks
If you choose to offer
pre-tax contributions or deductions
that are processed with your payroll, those will have to show up on paychecks as well. This includes things like health insurance, a flexible spending account, 401(k) contributions, and commuter benefits.
You may also have to show post-tax deductions for items like Roth 401(k)s or wage garnishments on your payroll.
In California, employers are not required to give their workers vacation time.
If you choose to offer paid vacation time though, keep in mind that it’s considered an earned wage. That means the vacation time your employee earns must be accrued and tracked as part of your payroll process.
put a cap on how much vacation time can be accrued, but in California, you can’t have a “use it or lose it” policy that requires employees to forfeit their earned vacation days.
And if an employee quits or is terminated, you must pay out accrued vacation days in their final paycheck since they’re considered earned wages.
If you have an unlimited vacation policy, you don't need to pay out unused vacation time when an employee is terminated. That's because unlimited vacation time isn't accrued, so it's not considered an earned wage.
While vacation time is optional,
California’s Healthy Workplace, Healthy Family Law of 2014
does require employers to offer paid sick time. There are a few different options that employers can take, but generally, employees must earn at least one hour of paid sick leave for every 30 hours worked.
You must indicate the number of paid sick days an employee has on their paycheck or send the information in a separate document on the same day as their paycheck is issued.
Other California payroll rules to be aware of
The information provided by the Paycheck Calculator provides general information regarding the
calculation of taxes on wages for CA residents only. It is not a substitute for the advice of an
accountant or other tax professional. The Paycheck Calculator may not account for every tax or
fee that applies to you or your employer at any time. ZenPayroll, Inc., dba Gusto
("Gusto") does not warrant, promise or guarantee that the information in the Paycheck
Calculator is accurate or complete, and Gusto expressly disclaims all liability, loss or risk
incurred by employers or employees as a direct or indirect consequence of its use. By using the
Paycheck Calculator, you waive any rights or claims you may have against Gusto in connection
with its use.