California Employee Benefits Guide for Small Businesses

So, you’re ready to hire your first employee in California? That’s a huge milestone—congrats! But before you hit “post” on that job listing, let’s make sure you’ve got everything covered when it comes to employee benefits. Because the last thing you want is to bring someone on board and then realize you’re missing key legal requirements. Talk about a headache.

Look, figuring out employee benefits in California can feel like wading through a swamp of legal jargon and fine print. This guide is designed specifically for small business owners like you who are about to hire their first employee. By the time you’re done reading, you’ll know what’s required and how to handle it without losing your mind.

Before we dive into the nitty-gritty of benefits, let’s cover a few must-do steps:

• Check your budget. Hiring isn’t just about wages—you need to factor in benefits, taxes, and other employer costs.

• Know your legal responsibilities. California and federal labor laws are no joke. Get familiar with what’s expected of you.

• Create an employee handbook. This isn’t just a formality—it protects you and sets clear expectations for your new hire.

• Consult a pro. An HR consultant or employment lawyer can save you from costly mistakes.

California has some of the strictest labor laws in the country. Here’s what you’re legally required to provide:

No matter how small your business is, if you have employees, you need workers’ comp. This covers medical expenses and lost wages if an employee gets injured on the job. Even if you only have one employee, this is non-negotiable.

Every employee in California earns at least one hour of paid sick leave for every 30 hours worked, with a minimum of 40 hours (or 5 days) per year. This applies to all businesses, even if you have just one employee.

You’re required to contribute to California’s unemployment insurance program. If your employee is laid off through no fault of their own, this helps them stay afloat while they find another job.

Once your business grows beyond five employees, a few more laws kick in:

• California Family Rights Act (CFRA): Up to 12 weeks of unpaid, job-protected leave for family and medical reasons.

• Pregnancy Disability Leave (PDL): Up to 4 months of unpaid leave for pregnancy-related conditions.

• Bereavement Leave: Employees can take up to 5 days of unpaid leave if a close family member passes away.

• Jury Duty, Voting, and Crime Victim Leave: Required for all employers, no matter the size.

That depends. If you have 50 or more full-time employees, the Affordable Care Act (ACA) says you must provide health insurance. But if you have fewer than 50 employees, you’re off the hook—at least legally.

Still, offering health benefits is a great way to attract and keep good employees. If traditional health insurance isn’t in the budget, consider Health Reimbursement Arrangements (HRAs).

• QSEHRA (Qualified Small Employer HRA): Designed for businesses with 1-49 employees. You set aside a fixed amount for employees to use on healthcare expenses.

• ICHRA (Individual Coverage HRA): Works for businesses of any size. Employees pick their own insurance, and you reimburse them.

• GCHRA (Group Coverage HRA): Helps employees cover out-of-pocket expenses if you already offer a group plan.

California law says that if you have 5 or more employees, you must offer a retirement plan or enroll in CalSavers. If you ignore this, you could face fines—$250 per employee after 90 days and $500 per employee after 180 days. Yikes.

Now, let’s talk about money and time off—because your employees will definitely have questions.

California’s minimum wage is higher than the federal rate, and some cities have even higher local minimum wages. As of January 1, 2025, the minimum wage is $16.50 per hour for all employers, not otherwise covered by a higher minimum wage specific to an industry or a locality.Make sure you’re paying what’s required where your business operates.

Employees must be paid overtime at 1.5x their regular rate if they work more than 8 hours in a day or 40 hours in a week. If they work over 12 hours in a day or 8 hours on a seventh consecutive workday, they get double-time.

If an employee quits or is fired, there are strict rules on when you have to give them their last paycheck. California doesn’t require you to offer paid vacation, but if you do, you must follow your own policies fairly.

A few more things to keep in mind as you start hiring:

• Workplace Accommodations: You must provide reasonable accommodations for pregnancy and disabilities.

• Independent Contractors vs. Employees: California has strict worker classification laws. Misclassifying employees as contractors can lead to serious penalties.

• Harassment Training: If you have 5 or more employees, you must provide anti-harassment training.

• Pay Transparency Law: If you have 15+ employees, you must disclose the pay range for open positions.

Hiring your first employee is a big deal. And yeah, California’s labor laws can be overwhelming. But now you know exactly what’s required—and you’re ready to build a business that’s not just compliant, but also a great place to work.

Here’s the bottom line: When you take care of your employees, they take care of your business. So, set yourself up for success. Plan ahead, stay informed, and create a workplace where people actually want to be.