California employee benefits and HR rules

Is your organization compliant with California's employment laws?

If your organization is based in California or you employ California workers, you need to know the ins and outs of benefits and HR compliance for California. This guide will provide a general overview of California’s regulations for small to medium size businesses.

Topics covered in this guide include:

• Why are employment laws different in California?
• What are employee rights in California?
• What are employers required to provide in California?
• Health insurance in California
• Wages laws in California
• Other employment and HR requirements in California

Why are employment laws different in California?

While there are many federal laws and regulations regarding employee benefits and HR, every state is responsible for establishing its own laws regarding businesses and employment.

In California especially, local requirements prevail over other state laws if you're an out-of-state employer, and sometimes federal laws as well.

Some of the state regulatory agencies that manage employment law include:

• Department of Industrial Relations
• Labor Commissioner's Office (also known as the Division of Labor Standards Enforcement)
• Division of Occupational Safety and Health (Cal/OSHA)

As the most-populated state in the United States, California is often considered one of the most employee-friendly states, offering greater protections for workers than federal law. This guide will highlight some of the most significant differences you need to know.

What are employee rights in California?

Employees in California have many rights under state and federal law. If you have or plan to hire employees in the state, you'll need to know what protected rights your employees have, no matter the size of your organization.

Some state rights include:

• Fair wages
• Employers must pay at least the state minimum wage and overtime pay. 
• Paid 10-minute breaks
• Employers must provide their employees with a paid 10-minute rest break for every four hours of work. Employees are entitled to one hour of pay for each workday where their rest period isn't authorized or permitted by the employer.
• The DLSE prohibits employers from requiring employees to count reasonable bathroom breaks as a rest period.
• Meal breaks
• Employers must allow nonexempt employees to take a meal break of at least 30 minutes after no more than five hours of work.
• Employers must provide a second meal break of no less than 30 minutes if the employee works for more than 10 hours in a single work period.
• Meal breaks may be unpaid.
• Safety in the workplace
• Employers are required to ensure the workplace is safe by correcting any hazards, having a written safety plan, training employees how to work safely, having workers' compensation insurance, and keeping track of all workplace injuries.
• The state requires workers' compensation insurance for workplace injuries
• The ability for employees to file a claim against employers for violating their rights without retaliation
• Employees may speak up about any wages owed to them, report any injuries or hazards, file a wage claim, file other claims and complaints with the state, and join with other workers to ask for changes without retaliation from the employer.

What are employers required to provide in California?

California requires employers to offer all eligible employees certain employee benefits and accommodations.

We've broken up the requirements in the sections below.

Required workplace accommodations

Employers must provide pregnancy accommodations in the workplace. You must allow for breaks for breastfeeding, as long as it doesn't disrupt the organization's operations, but they don't need to be paid.

The California Fair Employment and Housing Act, in conjunction with the federal Americans with Disabilities Act, requires organizations with five or more employees to provide reasonable accommodations for those with physical or mental disabilities.

This might include allowing employees to change job duties, providing medical leave, changing work schedules, relocating the work area, or providing additional aid.

What are the legally required employee benefits in California?

There are some employee benefits that are required under California labor laws and federal laws.

Required benefits include:

• Family and medical leave
• Organizations with five or more employees must provide up to 12 weeks of job-protected leave each year for medical leave, birth or adoption, or qualifying exigency for active duty military and their family.
• Organizations must provide up to eight weeks of paid family leave for employees who take leave to care for a family member, bond with a newborn child, or adoption, or for qualifying exigency for activity duty military and their family.
• Paid sick leave
• Employees must be allowed paid sick leave for diagnosis, care, or treatment of the employee's or a family member's existing medical conditions, preventative care, or domestic violence, sexual assault, or stalking.
• Employers must provide at least 24 hours (or three work days) per year.
• Other time off requirements
• Pregnancy disability leave
• Kin care leave
• Family military leave
• Bone marrow and organ donor leave
• School activities leave
• School discipline leave
• Jury duty leave
• Judicial leave
• Voting leave
• Election official leave
• Military leave
• Civil Air Patrol leave
• Literacy leave
• Drug and alcohol rehabilitation leave
• Day of rest requirements
• California Continuation of Benefits Replacement Act (Cal-COBRA)
• Requires organizations with two to 19 employees on a group health plan to offer COBRA. California's notice requirements and premiums are different from the federal COBRA
• Workers' compensation insurance
• Employee expense reimbursement, including remote work costs
• Retirement plans through CalSavers

Remote work reimbursement

California is one of 11 states and the District of Columbia that require employers to reimburse their employees for necessary work-related expenses—and employers can suffer big consequences if they don't adhere to state mandates.

Following the outbreak of the COVID-19 pandemic and the rise of remote work, many employees have sued their employers over unpaid remote work expenses in the state of California, including Amazon in 2022.

Under California Labor Code Section 2802, employers must reimburse employees for all necessary expenses, including internet access costs and phone bills.

Providing a remote work employee stipend is a way employers in California can alleviate the risks of remote work by allowing their employees to get reimbursed for their remote work expenses, including home office setup costs.

Retirement benefits

California was the first state to require mandatory retirement plans. The law, passed in 2012 and in effect since June 30, 2022, requires that organizations with five or more employees provide a retirement plan to their employees. Otherwise, employers must enroll in the CalSavers IRA program or face fines.

If you offer a retirement plan for your employees, you must file an exemption through CalSavers.

Failure to comply with the law could result in fines of $250 per employee after 90 days and $500 per employee after 180 days of non-compliance.

What benefits aren't required by law in California?

Most benefits aren't required by law in the state of California. This includes voluntary benefits like paid vacation time, paid holidays, life insurance, and severance pay.

While these aren't required to be provided to employees, if you elect to do so, you'll be subject to the state laws governing how these benefits must be offered and managed. You’ll be required to provide any benefits promised to workers in an employment contract.

Even if these types of benefits aren’t required, offering them can help you attract and retain employees, improve job satisfaction, and boost employee morale. Popular benefits include professional development opportunities, tuition reimbursement, commuter benefits, childcare benefits, and more.

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).

Learn more about each HRA

Health and wellness stipends

You can also offer your workers stipends for health and wellness expenses. A health stipend is a fixed sum of money offered to your employees to help pay for their healthcare expenses. A health employee stipend isn't a formal group health plan, so you have complete control over which expenses are eligible for reimbursement.

This makes a health stipend an excellent option for small businesses looking to offer a health benefit that covers costs health insurance or HRAs may not cover, such as mental health expenses.

However, health stipends are taxable. They also don’t satisfy the ACA’s employer mandate for organizations with 50 or more FTEs. This makes HRAs a better option for most organizations.

You can also offer a wellness stipend to reimburse your employees for other expenses and activities that impact their well-being. This can include gym memberships, wellness mobile apps, fitness trackers, and more. Offering a wellness stipend alongside a group health insurance policy or an HRA allows you to create a more holistic wellness program.

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 2023, this is a $64,480 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.

California pay transparency law

Senate Bill 1162 went into effect on January 1, 2023. This requires all employers with 15 or more employees to share their pay scale for any open positions. This also applies to organizations out-of-state with 15 or more employees who have at least one employee in California. Remote organizations open to hiring in the state must also provide this information in job posts.

According to the law, your salary range shouldn’t include any bonuses, commissions (unless the position’s salary is based on commission), tips, or employee benefits.

Failure to provide this information in your job posts could result in a $100 to $10,000 penalty.

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