Meet California’s Payroll Quirks: 4 Taxes & an ‘Employee Registry’

New for 2018: Higher Minimum Wages and a New Appeals Process

california payroll laws

California wages have a style all their own, and changes are afoot for 2018. If your business operates in California, you need to be fully aware of state payroll rules—as well as revamped wage and hour laws.

Payroll advisor Vicky M. Lambert knows the California’s payroll laws inside and out. She’s hosting a live webinar for AudioSolutionz, “Wage and Hour Law 2018: California Style,” to bring you up to speed on the Golden State’s payroll laws and what’s new for this year. The session covers minimum wages, mandatory sick leave, how to report time pay, what to include on a paystub, and more.

4 Payroll Tax Rates—and Their Caveats

Payroll rules in California apply to everyone—from major corporations to someone who hires an in-home nanny—and go into effect once you have paid at least one employee at least $100 in a calendar quarter, explained Brotman Law, a San Diego firm. Within 20 days of their first day of work you must then report information about your new worker to the California New Employee Register. Reporting can be done online, by mail, or by fax.

California has four payroll taxes, though for workers in some fields ranging from baseball players to election campaign workers, those taxes are limited or waived. Each of the four payroll taxes has different rates and caveats:

  1. Unemployment Insurance Tax: a percentage of wages that varies based on how long the worker has been with you
  2. Employment Training Tax: a 0.1 percent tax on the first $7,000 of taxable wages, which must be paid the first year but not necessarily after that (depends on your unemployment insurance reserve)
  3. State Disability Insurance Tax:9 percent up to $106,742, though this rate can change annually
  4. California Personal Income Tax: a tax levied on the income of state residents as well as non-residents who earn money in California.

What’s New: The Appeals Process

Last June, the California legislature changed the tax appeals process: Administration was shifted from the Board of Equalization to the newly-created Office of Tax Appeals (OTA), and another new board, the California Department of Tax and Fee Administration, was created. The new OTA will hear petitions, protests, claims, appeals, and applications.

Also new: A Minimum Wage Hike

Some California workers will see their paychecks increase this year. Effective January 1, the state minimum wage jumped to $10.50 an hour for businesses with 25 employees or less and to $11 an hour for employers with 26 or more workers. There is also a framework in place to see incremental increases to $15 an hour—to be reached at the start of 2023 for smaller companies and 2022 for larger companies.

However, a handful of California municipalities already have higher minimum wages: Cupertino, Los Altos, Malibu, Milpitas, Mountain View, Oakland, Palo Alto, Pasadena, San Diego, Santa Monica, the entirety of Los Angeles County, and 11 other cities. Each local minimum wage increase varies as to employee eligibility and effective date. In Cupertino, for example, the increase covers employees, regardless of their immigration status, who work at least two hours per week.

Complying with minimum wage rules can be especially tricky, notes employer-focused attorney Anthony Zaller. Common pitfalls include misunderstanding who is considered an employee, which wage rate applies, and how pay rates are noticed.

Lambert admits that navigating California’s payroll laws isn’t easy, but the best line of defense begins with having a firm understanding of the rules—and staying on top with updates.

To join the conference or see a replay, order a DVD or transcript, or read more
Jeff Schmerker
About Jeff Schmerker
Jeff has extensive professional experience writing on a variety of topics, from pharmaceutical research to environmental history. He has published more than a half-dozen books, and he has worked as a newspaper reporter, magazine editor and restaurant reviewer. He lives in Missoula, Montana with his wife and son.