California Hiring Laws for Small Businesses
California has the most extensive small business regulations in the U.S. — the $800 minimum franchise tax alone is a defining feature. The rules you need before hiring your first California employee.
$16.50/hr
as of 2025
Same day
Banned
Yes
Wage & Hour
Minimum wage: $16.50/hr
This is the California statewide minimum as of 2025. The federal minimum ($7.25) applies where a state has no higher rate. Some cities within California may set higher local minimums — check municipal ordinances.
Break requirements
30-min unpaid meal break for shifts >5 hrs; 10-min paid rest per 4 hrs. Daily overtime after 8 hrs.
Overtime
Federal FLSA requires 1.5x pay for hours over 40 in a workweek for non-exempt employees. Some states (notably California) also require daily overtime after 8 hours in a day.
Paid sick leave
California has a statewide paid sick leave law. Accrual rate typically 1 hour per 30-40 hours worked, with annual usage caps.
Termination & Final Pay
Final paycheck timing
- Involuntary termination: Same day
- Voluntary quit: Within 72 hours
Vacation payout on separation
Required — California treats accrued vacation as earned wages that must be paid out upon separation, regardless of company policy.
At-will employment
California is an at-will state — either party can end employment at any time, for any legal reason (not for a discriminatory or retaliatory reason). Written employment contracts and public policy exceptions can limit this.
Non-Compete Agreements
Non-compete agreements are effectively unenforceable in this state for most employees. Focus on trade secret protection and non-solicitation clauses instead.
What still works: Non-solicitation of customers/employees, confidentiality agreements, and trade-secret protection are typically enforceable even where non-competes are not.
Contractor vs Employee Classification
Strict ABC test — worker is an employee UNLESS all three prongs are satisfied: (A) free from control, (B) work outside usual business, (C) engaged in independently established trade. Very hard to classify as contractor.
Why this matters: Misclassifying an employee as a contractor exposes you to back wages, unemployment tax, workers comp, and penalties. State enforcement has tightened significantly since 2018.
First-Employee Onboarding Checklist
- Federal: Get EIN (irs.gov), register for federal payroll (Form 941 quarterly)
- State withholding: Register with California Department of Revenue
- State unemployment insurance (SUI): Register with California unemployment agency and pay quarterly
- Workers' compensation: Required at 1 employee. Purchase through private market.
- New hire reporting: Report to California new hire directory within 20 days of hire (federal PRWORA requirement)
- I-9 verification: Complete within 3 business days of hire (federal requirement)
- W-4: Get federal W-4 and state equivalent (if income tax applies)
- Required posters: Federal + California labor law posters (available free from state DOL)
California-Specific Employment Rules
The rules and quirks that make hiring in California different from other states.
- California minimum wage is $16.50/hr statewide for 2025, but local minimums are higher: San Francisco ($18.67), West Hollywood ($19.61), Emeryville ($19.36), Oakland ($16.89).
- California requires daily overtime after 8 hours in a workday, plus double-time after 12 hours — stricter than the federal FLSA weekly-only standard.
- California uses the strictest ABC test (Dynamex/AB5) for contractor classification — worker is presumed an employee unless all three ABC prongs are met.
- California banned nearly all non-competes in 2024 (SB 699 and AB 1076) — even out-of-state non-competes are unenforceable against California residents.
- California requires paid family leave up to 8 weeks (state disability insurance program) and paid sick leave of 40 hours/year.
Reference only — not legal advice.
Employment law changes frequently and turns on facts. For specific hiring decisions, terminations, or contractor classifications, consult a California-licensed employment attorney. City-level rules (Seattle, NYC, SF, etc.) may add requirements beyond state law.