California Payroll and Tax Requirements for Businesses
*The following article was updated in March 2024*
If you’re a business in California, be prepared to comply with state payroll and tax requirements. Businesses with one or more employees need to follow specific guidelines set forth by the Employment Development Department (EDD) to assure they’re complying with requirements such as paid sick leave and taxes. Here’s a look at a few other California payroll requirements.
If you operate a business and employ one or more employees, you must register as an employer with EDD when you pay wages of more than $100 in a calendar quarter. These businesses may include (but are not limited to) the following: sole proprietors, partnerships, corporations, nonprofit and charitable organizations, limited liability companies and partnerships, public entities, schools, and more. Additionally, businesses are required to electronically submit employment tax returns, wage reports, and payroll tax deposits to the EDD, effective January 1, 2018.
State Payroll Taxes
California has four state payroll taxes that employers are required to maintain:
- Unemployment Insurance (UI) Tax – UI is paid by the employer and provides temporary payments to individuals who are unemployed through no fault of their own.
- Employment Training Tax (ETT) – The ETT is an employer-paid tax that provides funds to train employees in certain industries to improve the competitiveness of California businesses.
- State Disability Insurance (SDI) Tax – SDI is deducted from employees’ wages and provides temporary benefit payments to workers for non-work-related disabilities. SDI tax also provides Paid Family Leave (PFL) benefits.
- California Personal Income Tax (PIT) – PIT is withheld from employees’ pay based on the W-4 form the employee completes upon hiring. California residents and non-residents working within California pay state income tax.
California also requires that you track leave accruals and balances. This is done because if an employee leaves, the business needs to pay the individual any unused sick pay or vacation balances.
Filings and Deadlines
California businesses are required to report specific information to the EDD on a periodic basis. Many of these required forms are due within 20 days of hiring a new employee. Forms include the Report of New Employees (DE 34), Report of Independent Contractors (DE 542), Quarterly Contribution Return and Report of Wages (DE 9), and Payroll Tax Deposit (DE 88).
Paying Employees
California businesses have two options for paying employees: cash or check, and the check can be made through direct deposit. Employees can either be paid monthly or every other week. If an employee is paid bi-weekly, then there cannot be more than 15 days between paychecks.
California requires that all employers issue a paystub with an employee wage. Additionally, a paystub must include the following information: pay period start and end dates; employee name and identification (last four digits of the Social Security number are acceptable); hours worked during the pay period; hourly rate or salary; gross and net wages; deductions taken out of the paycheck; and employer name and address.
For California businesses, it can be difficult to manage these different taxes and payroll requirements. An accountant or experienced tax attorney can help so your business does not end up paying hefty penalties in the future.
Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.
