California labor laws: A complete guide for small business owners (Updated for 2022)
If you're not familiar with California's labor laws, you could be putting your business in jeopardy. The stakes are high for your company. Your livelihood depends on staying compliant. So checking every detail can be overwhelming.
This guide to California labor laws for small business owners will help you navigate the confusing maze of regulations and stay in compliance.
Understanding California labor law basics
California labor laws affect various issues, including wages, benefits, and hours. Understanding your obligations as an employer is essential to you and your employees.
Here’s a brief overview of California labor law basics. Keep in mind that a lot can go wrong if you aren’t aware of everything from mandated time off and overtime pay requirements.
|Employment Area||California Guidelines|
|State minimum wage||$14 per hour for employers with 25 employees or less, otherwise $15 per hour|
|Time and a half||Over 8 hours in a day, over 40 hours in a week, 7th consecutive day of a workweek|
|Double time||Over 12 hours in a day, over 8 hours on the 7th straight workday|
|Off-the-clock work||Cannot force workers to work off-the-clock, all time spent working must be paid|
|Paychecks||Must be paid at least twice in each month, final paycheck due on the same day as termination|
|Vacation||Paid-time-off (PTO) is not required. If offered, unused vacation days must be cashed out when the employee leaves.|
|Sick leave||At least 24 hours or 3 days of paid sick leave per year|
|More free play||Less free play|
|Business expenses||Must reimburse all costs that were “necessary” for the employee to perform job duties|
EEO, diversity, and employee relations
The U.S. Equal Employment Opportunity Commission, or EEOC, is a federal agency that oversees employment discrimination laws to promote equity in the workplace. It was established by the Civil Rights Act of 1964 to administer and enforce civil rights laws.
Fair employment practices
California law prohibits businesses from discriminating against employees or job applicants based on their:
- National origin
Learn more about discrimination at the Fair Employment and Housing Act (FEHA) website. (And if you’re concerned about legal costs if someone were to accuse you of discrimination or wrongful termination, consider purchasing Employment Practices Liability Insurance.
You must provide reasonable accommodations if your employees are pregnant or recovering from childbirth. You might temporarily modify their work duties, offer a stool or chair, allow more frequent breaks, or move them to a less strenuous or hazardous position (if one is available).
The California Workplace Religious Freedom Act of 2012 (WRFA) protects religion, religious observances, and beliefs. It includes religious dress and grooming practices, such as clothing, head or face coverings, jewelry, and other items.
However, the law requires you to make accommodations only if it’s possible without undue hardship.
You must provide reasonable accommodations to qualified individuals with physical or mental disabilities if you have five or more employees.
If two people on your team do similar work, you can’t pay one less money because of their sex, race, or ethnicity.
If you’re asked about a pay differential, be ready to prove that the difference in wages is due to a legitimate reason—such as seniority, education level, or the relative quality of the employee’s work.
Discussion of wages
You can’t stop workers from talking about their wages, the wages of others, or asking about others’ wages. You also can’t prohibit an employee from encouraging another employee to ask about, discuss, or disclose wages.
Access to personnel files
By law, all your employees and former employees have the right to access their personnel files. If they ask to see it or get a copy of it, they must do it by written request, and you must provide it to them within 30 days.
California employers can’t make rules or policies that prevent an employee from being a whistleblower. A whistleblower is a worker who discloses information about your business to a government or law enforcement agency because they believe you’re violating safety standards or breaking the law.
You can’t retaliate against an employee if they become a whistleblower, if they’ve ever been a whistleblower in the past, or if they refuse to participate in an activity that would break the law.
Recruiting and hiring
Not all small businesses have employees, but it’s important to know your rights and responsibilities if you do. When recruiting and hiring, you can check an applicant’s credit report if you let them know—but you cannot generally use it to make job decisions.
California law allows pre-employment drug tests but typically prohibits random drug testing.
Another significant law regarding recruiting and hiring involves asking job applicants about their salary history—don’t do it. Employers cannot seek salary history information about an applicant “personally or through an agent.”
Wage and hour
California wage laws require small business owners to offer fair pay and benefits, as well as a safe work environment. Here’s what you need to know about wage and hour laws in California.
- Minimum wage: California minimum wage in 2022 is $14 per hour if you have 25 employees or less. Otherwise, the state’s labor commissioner requires you to pay at least $15 per hour.
- Overtime: You can’t ask an employee to work “off-the-clock,” according to California overtime laws. The overtime pay rate is time and a half for work over 8 hours a day, over 40 hours in a week, or the 7th consecutive day of work. Double time is for over 12 hours or 8 hours on the 7th consecutive workday.
- Rest breaks: Anytime an employee works four hours (or a “major fraction” of four hours), you must provide them a 10-minute rest period. For example, your employees are entitled to two 10-minute rest breaks for working a 7-hour shift.
- Meal breaks: Generally, employees must have at least a 30 minute meal period if they work more than 5 hours in one shift.
- Breastfeeding breaks: As a California small business owner, you must offer breaks and private space for an employee to express breast milk.
Child labor laws
Another area of concern is child labor standards. For example, suppose you want to hire your child, niece, nephew, neighbor, or another minor for your Los Angeles business. Here’s what you need to know:
- Almost every minor in California needs to have a permit to work.
- California workers under the age of 16 aren’t allowed to work in certain occupations, such as jobs that use dangerous machinery, harmful acids, or scaffolding. They also aren’t allowed to handle tobacco.
- There are different time restrictions depending on how old your minor employee is. A 14-year-old has a different set of time restrictions than a 17-year-old would.
- If your business is in the entertainment industry, there may be additional restrictions, such as getting an entertainment permit for minors.
Pay and benefits
A prudent small business employer should be aware of the laws and regulations that govern pay, benefits, and other terms of employment. Here are some legal compliance and benefits issues that come with having employees.
Temporary disability insurance
California law requires you to provide your employees with access to temporary disability insurance. The coverage pays a wage-replacement benefit to eligible workers who can’t work as usual due to a non-job-related medical issue.
The disability insurance is provided through California’s State Disability Insurance (SDI) program. SDI isn’t coverage employers pay for out-of-pocket. Instead, the program is funded by taxes withheld from your employees’ paychecks.
Health care continuation
If your business has between 2 and 19 employees and offers health insurance, your group health plan needs to provide continuation coverage (as laid out in the California Continuation Benefits Replacement Act, also known as Cal-COBRA) to qualified employees and their eligible dependents.
By law, you must provide each employee with a pay statement. The pay statement can be a detachable part of the check or a separate written statement. It must contain:
- The dates of the period you’re paying for in that check
- Gross wages and net wages earned
- How many hours were worked or the number of units they performed, and the rate of pay for each unit if your employee is paid on a “piece-rate” or quota basis
- All deductions
- Your employee’s name (as well as their employee ID number or the last 4 digits of their Social Security Number)
- The name and address of your business
- Applicable pay rates during the pay period (as well as a complete list of the hours the employee worked at each rate)
There are 2 significant rules regarding how often you pay employees in California:
- You need to designate paydays in advance (and communicate those dates clearly to your employees)
- You need to pay your employees at least twice a month
You’re allowed to make deductions from your employees’ wages only in certain circumstances—and generally only with your employee’s written authorization to do so (unless a law or court order is involved).
Common deduction circumstances can include withholding insurance premiums, benefit plan contributions, and tax payments. Other situations may require child support withholding or creditor garnishments.
The California Wage Theft Protection Act requires business owners to provide a written notice to new employees at the time of hire. The notice must have the employee’s pay rate, employer name and address, workers’ compensation carrier, and other information. To make it easy, you can use the notice to employee form provided by the state.
Time off and leaves of absence
Besides vacation time and sick leave, California employers must follow guidelines for family and medical leave, paid family leave, and other time off requirements. Here’s what you need to know.
California law doesn’t require business owners to offer paid or unpaid vacation time. However, you must follow certain restrictions if you choose to offer it. For example, vacation time is earned as an employee performs labor. So, if you offer employees 10 days of vacation per year, the employee will have earned 5 days of vacation after 6 months of work.
You must also payout all earned and unused vacation time at the employee's regular rate of pay if the employee leaves your company.
Family and medical leave
If you have more than 49 employees, you must comply with the federal Family and Medical Leave Act (FMLA) and California Family Rights Act (CFRA). This means that for every 12 months of employment, you'll need to provide eligible employees with up to 12 weeks of job-protected leave during significant family events (such as the serious health condition of a family member or the birth of a child).
Paid family leave
In California, state laws offer eligible employees a partial wage replacement benefit when they take time to care for a seriously ill member of their family or bond with a new baby or adopted child. The benefit is called Paid Family Leave (PFL), and employees can take up to 8 weeks of it per 12-month period.
Paid sick leave
After your full or part-time California employee has worked for at least 30 days in a calendar year, they’re eligible to earn sick leave. They’ll get at least one hour of paid sick leave for every 30 hours they work for you. Your employees can take their paid sick leave for the following reasons:
- Diagnosis, care, or treatment of the employee’s existing health condition
- Preventative medical care, diagnosis, or treatment for the employee’s family member
- Appropriate purposes related to victims of sexual assault, stalking, or domestic violence
Other time off requirements affecting California employers
If you run a small business in California, you must also comply with additional time off regulations. A few examples include:
- Bone marrow and organ donor leave
- School activities leave
- Military leave
- Jury duty leave
- Voting leave
However, keep in mind that not all requirements apply to all businesses. For example, the law for taking leave for school activities doesn’t apply to independent contractors or if you have 24 or fewer employees.
Health and safety of California employees
The Occupational Safety and Health Administration (OSHA) requires you to provide safe working conditions for your team—that’s no surprise. But California business owners must also pay attention to specific health and safety regulations.
According to the California labor code, the state requires a written Injury and Illness Prevention Program (IIPP). You’ll develop and implement the workplace safety program yourself on behalf of your business. But don’t worry—the state offers free training on creating such a program.
California also prohibits smoking in "enclosed spaces" of the workplace. That means you’ll need to make a reasonable effort to prevent it by posting “No Smoking” signs around work areas and keeping an eye out for violators.
If your employees drive as part of their job duties, know that California drivers cannot use a hand-held mobile device while driving. Make sure your employees aren’t texting, calling, or otherwise operating a cell phone or mobile device while driving.
Even the best employees don’t last forever. Some employees aren’t suitable for their roles, and others may seek opportunities elsewhere. When that happens, it’s called an organizational exit. California labor laws can require:
- Documentation: You’ll provide your employee a Notice to Employee as to Change in Relationship, California’s Program for the Unemployed, COBRA and Cal-COBRA notices, and a Health Insurance Premium (HIPP) Notice.
- Last paycheck law: If you fire or lay off an employee, you must pay their final wages immediately—as soon as you terminate their employment. The rules are the same if the employee quits (if they’ve given you 72 hours' notice).
- Mass layoff notifications: If you know that your business is about to close (or if you plan to lay off all or most of your staff for another reason), you’ll need to provide a 60-day notice to your employees. The regulation is part of the California WARN Act.
Stay up to date with California labor laws
As you can see, work law is complex. As a California business owner, you’ll encounter plenty of ways to break the law without realizing it. An excellent place to get complete details on California employment law is the Department of Industrial Relations website.
Finally, if you’re losing sleep about keeping compliant with California’s changing employment laws, consider a pretty simple fix: An Employment Practices Liability Insurance policy. You can easily add it to your Huckleberry Business Owner’s Policy to protect you and your business if an employee ever sues you for an unfair or illegal employment practice. It’s not a substitute for staying up to date on California work law, but it’s a great way to get some peace of mind—just in case.