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Guide To Hiring Employees In California

Guide To Hiring Employees In California

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Guide To Hiring Employees In California

Employer Information

Minimum Wage: In 2024, the minimum wage in California will be $16.00 per hour (except for fast-food chains with 60 or more locations nationwide, which are now required to pay at least $20 an hour).

 

At-will-employment: Unless an employer provides an employment contract stating otherwise, an employee in California can be fired without cause.

Simplify the Hiring Process

Staying on top of the required paperwork for new employees is complicated. Gusto makes it easy.

The success and growth of most small businesses depend on having the right people working for you. Figuring out the rules and paperwork when hiring new employees is complex, as there are legal considerations to keep in mind.

In this guide, we will walk you through the 8 steps a business will take when hiring their first employee in California.

Related: Guide to starting a business in California

Steps To Hiring Your First Employee In California

Step 1: Register as an Employer

Employers will need to first get a Federal Employer Identification Number (FEIN) – Form SS-4 from the Internal Revenue Service (IRS) in addition to the California Employer Account Number & Unemployment Number from the California Employment Development Department.

Step 2: Employee Eligibility Verification

Each new employee will need to fill out the I-9 Employment Eligibility Verification Form from U.S. Citizenship and Immigration Services. The I-9 Form is used to confirm citizenship and eligibility to work in the U.S.

The employee must complete Section 1 by their first day of work, and the employer will complete Section 2 by the end of the third business day after the employee starts.

Employers don’t submit the I-9 form but are required to keep the form on file for three years after the date of hire or one year after the employee’s termination, whichever is later.

Step 3: Employee Withholding Allowance Certificate

Each employee will provide their employer with a signed Withholding Allowance Certificate (Form W-4) on or before the date of employment. The W-4 form determines how much federal income tax will be withheld from the employee’s paycheck.

The employer does not typically submit Form W-4 to the IRS but will keep a copy on file.

See IRS’s Publication 15 – Employer Tax Guide for more information on federal withholding.

Step 4: Submit the New Hire Reporting Form

California employers are required to report newly hired employees (and re-hired employees) to the New Employee Registry Program within 20 days of their hire date.

Employee Information that will be needed on the new hire form includes the employee’s name, address, Social Security Number, date of birth, and start date, or the first day the employee begins work.

Employer Information includes Federal Employer Identification Number, business name, address, and contact phone number.

The completed new hire reporting form can be submitted online to the California Employment Development Department;

by mail with the Report of New Employees (Form DE 34):
Employment Development Department
P.O. Box 997016, MIC 96
Sacramento, CA 95799-7016

by fax: 916-319-4400

The new hire information is required through the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). This information is recorded in the State Directory of New Hires and the National Directory of New Hires (NDNH) to locate parents and non-custodial parents who owe child support.

Step 5: Set Up Payroll Taxes

After hiring employees, payroll taxes will need to be paid. Payroll taxes include:

Federal Income Tax Withholding

Employers withhold money from each employee’s paycheck to pay the employee’s federal income taxes based on the information provided in their W-4. The employer pays no part of the withholding tax but is responsible for collecting and remitting the withheld taxes.

Federal income tax withholding reports are filed using Form W-2, Wage, and Tax Statement with the IRS. Additionally, IRS Form 941 is due quarterly, and IRS Form 940 is filed annually to report any unemployment taxes due.

State Income Tax Withholding

Similar to federal income tax withholding, taxes are withheld from an employee’s paycheck for state income taxes. Use Form DE4, Employee’s Withholding Exemption Certificate.

Social Security & Medicare

Social Security and Medicare taxes are paid under the Federal Insurance Contributions Act (FICA). The employer pays half of FICA, and the other half is paid from the employee’s wages.

Unemployment Insurance

Employers pay state and federal unemployment taxes based on a percentage of each employee’s salary. This tax is known as State Unemployment Taxes (SUTA) and Federal Unemployment Taxes (FUTA).

Taking care of hiring paperwork and paying payroll is complicated and it's easy to make mistakes. Payroll services like Gusto simplify the process and ensure the federal and state reporting is up-to-date.

Step 6: Obtain Workers’ Compensation Insurance

All businesses with employees (even a single part-time employee) are required to carry workers’ compensation insurance coverage to cover medical costs if employees are injured on the job. Worker’s Compensation Insurance is administered through the California Department of Industrial Relations.

Step 7: Labor Law Posters and Required Notices

California businesses must display Federal and State of California labor law posters where they can be easily viewed by employees. These posters inform employees of their rights and employer responsibilities under labor laws, such as federal minimum wage, anti-discrimination laws, and workers’ compensation rights.

California labor law posters can be individually printed from the California Department of Industrial Relations’s website.

Step 8: Stay Up To Date

It is important to understand the differences between employees and independent contractors. Employers will sometimes improperly classify employees as independent contractors who have different rules on payroll taxes, minimum wage, overtime, and other labor laws. An individual’s status as an employee or an independent contractor may be determined by filing IRS Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes, and Income Tax Withholding.

The process of hiring your first employee in California can feel overwhelming, but with a clear understanding of what’s required, you’re setting your business up for success. Labor laws are complex and ever-changing, so be sure to keep up-to-date with the California Labor and Workforce Agency and the U.S. Department of Labor, and remember to seek professional advice if needed.

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

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Guide To Hiring Employees In California

Guide To Hiring Employees In California

2 Responses

  1. Hi Greg,

    I recently opened my own LLC operating as a food truck. We’re not really a food truck but that’s how my lawyer set up the business to simplify things I guess. We’re a popup restaurant. We operate once monthly, have zero full time employees except for myself and my business partner. I’m wondering that since we don’t have any full or even part time employees for that matter, if there’s a way to pay them based off an hourly contract. Not by labeling them as either part or full time employees. We want to avoid as much insurance/tax cost as possible. We’re very small so even little costs hurts us greatly.
    What would this look like? My employees pay is important to me, and the success of the company is important, but since we’re so spread out business wise I’m wondering what the smart move would be.

    -Nik

    1. Hi Nik

      When you add up the costs to have an employee, it gets really expensive, but misclassification can cost even more.

      Your other option is paying a contractor, but if this person comes to your restaurant, uses your equipment, during hours you set, they should be an employee. A contractor would be more like when you call a plumber to come in to fix a leak. You don’t exactly know when they are coming, they bring their own tools, and they are set up to provide this service for multiple customers.

      Any contractor that you pay over $400 is supposed to get a 1099 at the end of the year, where they claim the income and expenses of their business. If the state or IRS audits the people you claimed as a contractor, you could be on the hook for payroll taxes (both the employer and employee contribution), taxes, and penalties.

      From what you describes, it sounds like they should be classified as an employee, but I’m not a labor expert, so you may want to check page 8 of the California Employer’s Guide and/or talk with your attorney as the misclassification is very expensive.

      Hope this helps. Let me know if you have any other questions!
      Greg

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