California employee benefits and HR rules

Health insurance in California

While health insurance isn't required by state law, federal law requires employers with 50 or more full-time equivalent employees (FTEs) to provide health insurance benefits with minimum essential coverage (MEC).

Offering health insurance benefits to your employees is a great way to attract and retain top talent.

While traditional group health insurance is a popular option, rising premium costs have made it challenging for small to medium size businesses to offer the benefit.

There are some alternatives for small business owners who can't offer group coverage due to minimum contribution or minimum participation requirements or who can't afford to pay the high price of California insurance premiums.

Health reimbursement arrangement (HRA)

A health reimbursement arrangement (HRA) is an IRS-approved, employer-funded health benefit that allows you to reimburse your employees, tax-free, for their individual health insurance monthly premiums and qualifying medical expenses. This includes many expenses normally covered under dental and vision insurance.

With an HRA, you have complete control over your benefit while giving your employees more freedom to choose how they want to use their benefit.

Some HRAs, such as the individual coverage HRA (ICHRA), can satisfy the federal regulations for applicable large employers (ALEs).

Wage laws in California

Wages in California are subject to various state laws. We've compiled the most important requirements to know below.

Minimum wage laws

California has a state minimum wage that exceeds the federal minimum wage. 

In 2017, California started to increase its minimum wage annually. During this transition, businesses with 25 employees or less had a separate minimum wage until the state minimum wage topped out at $15.50 in 2023.

Tips can't be counted as part of minimum wage in California, as they can in some other states.

Additionally, some employees, such as outside salespeople, family members, and camp counselors, are exempt from being paid minimum wage.

Exempt employees must earn at least two times the state minimum wage for full-time employment for their monthly salary. For 2024, this is a $66,560 annual salary.

Local minimum wages

In addition to the state minimum wage, you may be subject to paying a higher minimum wage if you have employees working in various cities. That's because some cities and counties in the state have a higher wage requirement.

Overtime pay

You must pay employees 1.5 times their regular rate of pay for any overtime worked. In California, this means any hours over eight in one day or over 40 in a week for most occupations.

You must also pay employees double-time for all hours over 12 in one day or eight hours on a seventh work day.

The table below shows how this works in practice for someone who makes $15.50/hour and works for 13 hours.

Pay statements

California requires organizations to provide accurate, itemized pay statements with each paycheck, or at least semimonthly. 

Pay statements must include the following:

• Gross wages earned
• Total hours worked for nonexempt employees
• The number of piece-rate units earned for piece-rate employees
• All state and federal deductions
• Net wages earned
• Dates of the payroll period
• Employee's first and last name, and last four digits of their Social Security Number or employee ID number
• Employer's name and address
• Hourly rates and the number of hours worked
• Overtime

Final pay

When an employee leaves, you must provide their unpaid wages immediately upon their final work day if they gave advance notice of at least 72 hours. You can mail final wages within 72 hours if your employee provided no notice to you.

You must also pay out unused vacation time, as California considers paid vacation time as wages.

Warehouse quota laws

Assembly Bill 701, which went into effect in 2022, protects warehouse workers from quotas that violate state and federal labor laws. Employers must provide information on their employees’ quotas.

Other HR and employment requirements in California

In addition to employee benefits and compensation, there are other unique HR rules that you need to know about.

Independent contractors vs. employees

Unlike other states that rely on the "right to control" test to determine if a worker is a contractor or an employee, California has established a series of rules that employers must satisfy.

A worker is an independent contractor in California if all three of the rules below apply:

1. They are free from the control and direction of the hiring entity
2. They perform work that is outside the usual course of business for the organization
3. They are engaged in an independently established trade, occupation, or business of the same nature as the work they are performing for the organization

Failure to correctly classify your employees can result in serious repercussions.

Harassment training

All employees of organizations with five or more employees must complete an hour or more of harassment prevention training, while managers and supervisors must complete two hours every two years.

Harassment training must include practical examples of sexual harassment and harassment based on gender identity, gender expression, and sexual orientation.

This is important for organizations to comply with because managers and employers can be held liable for harassment in the workplace if it continues once reported.

Non-compete agreements

California doesn't allow non-compete agreements or prohibit former employees from working for your competitors for a specific amount of time.

However, you can still enforce confidentiality agreements.

Hiring practices

While federal law already prohibits discrimination and denial of equal employment opportunities based on personal attributes such as race, sexual orientation, and national origin, California's FEHA is generally more inclusive.

FEHA prohibits discrimination in hiring practices based on:

• Race or color
• Ancestry or national origin (including languages)
• Religion
• Age (over 40)
• Mental or physical disabilities
• Sex or gender, including sexual orientation
• Medical conditions
• Genetic information
• Marital status
• Military or veteran status
• The perception that someone is a member of a protected class or is associated with someone who is a member of a protected class

California also has laws protecting job applicants and their privacy, including not providing fingerprints or photos to third parties, prohibiting requirements for applicants to provide their social media usernames and passwords, prohibiting employers from asking about salary histories, and prohibiting employers from asking about an applicant's criminal history until an offer has been made.

Employers also may not require a polygraph as a condition of employment.

Frequently asked questions