A small business owner shakes hands with a new hire across a desk, hiring your first employee in California

Hiring · California

Hiring your first employee, without the penalties

The registrations, forms, wage rules and insurance California requires, in the order you need them, with the 2026 numbers from the EDD, the IRS and the Labor Commissioner.

15 daysTo register with the EDD
3 daysBusiness days to finish Form I-9
20 daysTo file the new hire report

Hiring your first employee is the moment a business stops being one person’s job and starts creating jobs for others. In California it also means new accounts with the Employment Development Department (EDD), the IRS and an insurance carrier, plus wage, leave and notice rules that apply from the first hour of work. None of it is hard once you see it in order. This guide walks through each step with the 2026 figures from the agencies themselves.

The facts below come from the EDD’s California Employer’s Guide 2026 (DE 44), IRS Publication 15 for 2026, the California Department of Industrial Relations (DIR) and other official pages, all checked on Nov. 13, 2026. Employment law has exceptions by industry and city, so confirm your situation with the agency or an employment attorney before you rely on any single rule.

$100Wages in a quarter that make you a subject employer
15 daysTo register with the EDD after that
3 business daysTo complete Form I-9, Section 2
40 hoursMinimum paid sick leave per year

Step 1: Decide that you really are hiring an employee

Before you post a job, decide whether the role is an employee or an independent contractor. California presumes a worker is an employee unless the business can pass all three parts of the ABC test: the worker is free from your control, the work is outside the usual course of your business, and the worker runs an independently established business of the same kind. A cashier in your store, a barista in your café or an assistant who works your hours almost always fails that test, which makes them an employee. Our employee vs. independent contractor guide explains the test in detail.

Next, write a short job description with duties, schedule, location and pay. Decide whether the job is non-exempt (paid hourly with overtime) or exempt. In 2026, an exempt employee in California must earn at least two times the state minimum wage for full-time work, which works out to $70,304 a year at $16.90 an hour. The DIR says that floor rises to $72,384 on Jan. 1, 2027, and the employee must also meet the duties test for the exemption.

An owner interviews a job candidate across a table before hiring your first employee
A clear job description and pay rate make the first interview easier. Photo: Vitaly Gariev on Unsplash

Step 2: Get your federal and state employer numbers

You need a federal Employer Identification Number (EIN) from the IRS before you can run payroll. It is free and takes minutes online; our EIN guide shows the steps.

California has its own trigger. According to the EDD, you become a subject employer when you pay wages of more than $100 in any calendar quarter to one or more employees, and you must register within 15 days. Registration is online through e-Services for Business, and the EDD assigns an eight-digit employer payroll tax account number that goes on every deposit, return and letter. Since all California employers must file and pay electronically, set up your e-Services login at the same time.

The order that works for a first hire

  1. Get an EINApply free on IRS.gov before your first payroll.
  2. Register with the EDDWithin 15 days of paying more than $100 in wages in a quarter; you receive an eight-digit state payroll tax account number.
  3. Buy workers’ compensationRequired in California even for one employee, before the person starts work.
  4. Choose how you will run payrollPayroll software, an accountant or a payroll service; you stay responsible for the taxes either way.
  5. Prepare the new hire packetForm I-9, Form W-4, California DE 4, the wage notice, the sick leave and workers’ compensation information, and the EDD pamphlets.
  6. Report the hireFile the Report of New Employee(s), DE 34, within 20 calendar days of the start date.

Step 3: Buy workers’ compensation before day one

Every California employer with even one employee, including family members who work in the business, must carry workers’ compensation insurance under Labor Code section 3700. You can buy it from a licensed insurer or the State Compensation Insurance Fund, or self-insure with state approval. The cost of skipping it is steep: the Labor Commissioner issues a stop order that bars you from using employee labor until you are covered, plus a penalty of twice the premium you should have paid or $1,500 per employee, whichever is greater.

  • Post the notice. Display the “Notice to Employees” workers’ compensation poster where workers can see it.
  • Give the pamphlet. New hires must receive a workers’ compensation pamphlet that explains their rights.
  • Act fast after an injury. Give the employee a claim form within one working day of learning about a work injury, and send it with your report to the claims administrator within one working day of getting it back.
Sole owners and partners

The Labor Commissioner’s FAQ notes exceptions when the only people working are the partners of a partnership, or corporate officers who are the sole shareholders. The day you hire someone else, the requirement applies.

Step 4: Complete the new hire paperwork

Federal law requires Form I-9 for every new employee. The employee completes Section 1 no later than the first day of work for pay, and you must examine the documents and complete Section 2 within three business days of that date, according to U.S. Citizenship and Immigration Services. If the employee starts on Monday, Section 2 is due by Thursday.

For withholding, the federal Form W-4 now covers federal income tax only. The EDD says each employee must also complete California’s Employee’s Withholding Allowance Certificate (DE 4), and you must use it to figure state income tax withholding.

  • Wage notice. Most employees must receive the Labor Code section 2810.5 Notice to Employee with the pay rate, payday and sick leave terms.
  • Domestic violence notice. The DIR requires employers to give new employees the Labor Commissioner’s notice of rights for victims of domestic violence, sexual assault and stalking.
  • EDD pamphlets and poster. Provide the pamphlets on Unemployment Insurance, Disability Insurance and Paid Family Leave, and post the EDD notice the agency mails after you register.
  • New hire report. File the DE 34 within 20 calendar days of the start-of-work date. Rehires after a break of 60 or more days count as new hires.
An employer reviews new hire forms with an employee, part of hiring your first employee
Forms I-9, W-4 and DE 4 belong in every new hire packet. Photo: Vitaly Gariev on Unsplash

Step 5: Set pay that meets California law

California’s minimum wage is $16.90 an hour for all employers in 2026, and the DIR announced on Aug. 13, 2026, that it rises to $17.40 on Jan. 1, 2027. Some cities and counties set a higher local minimum, and when they do, you must pay the higher rate. Fast-food and certain health care jobs have their own minimums.

California statewide minimum wage and exempt salary floor

Year Minimum wage per hour Exempt full-time salary floor
2025 $16.50 $68,640
2026 $16.90 $70,304
2027 (from Jan. 1) $17.40 $72,384

Source: DIR minimum wage FAQ and News Release 2026-66 (Aug. 13, 2026). The salary floor is two times the state minimum wage for 40 hours a week, 52 weeks a year, the formula the DIR uses. Local minimums may be higher.

Pay frequency is also regulated. Most employees must be paid at least twice a month on regular paydays set in advance: wages earned from the 1st to the 15th are due by the 26th, and wages earned from the 16th to the end of the month are due by the 10th of the next month. Each paycheck needs an itemized wage statement with gross and net pay, deductions, pay period dates and, for hourly staff, total hours worked.

Step 6: Know your leave, training and retirement duties

  • Paid sick leave. Since Jan. 1, 2024, California employers must provide at least 40 hours or five days of paid sick leave a year, whichever is more. Under an accrual plan, employees earn at least one hour for every 30 hours worked and can start using leave after 90 days of employment.
  • Harassment prevention training. Once you have five or more employees, the Civil Rights Department (CRD) requires one hour of training for non-supervisors and two hours for supervisors every two years, and within six months of hire or promotion. Contractors count toward the five. CRD offers free online courses that meet the requirement.
  • CalSavers. Employers with at least one employee must register for CalSavers or offer their own qualified retirement plan. CalSavers charges employers no fees, and employers do not contribute.

What your first employee really costs

Wages are only part of the bill. As the employer you pay your share of Social Security and Medicare, federal unemployment tax (FUTA), California Unemployment Insurance (UI) and the Employment Training Tax (ETT), plus workers’ compensation premiums. Here is a worked example using 2026 rates from the IRS, the EDD and the U.S. Department of Labor.

Employer cost of one part-time employee in 2026

Wages$20 an hour, 30 hours a week, 52 weeks
$31,200
Social Security6.2% employer share
+$1,934
Medicare1.45% employer share
+$452
California UI3.4% new employer rate on first $7,000
+$238
FUTA2.1% on first $7,000 (0.6% + 1.5% California credit reduction)
+$147
ETT0.1% on first $7,000
+$7
Total before workers’ compAbout 8.9% above wages
$33,978

Illustrative example, rounded to the dollar. Rates: IRS Publication 15 (2026), EDD 2026 rates, DOL final 2026 FUTA credit reductions (Nov. 10, 2026). Workers’ compensation premiums vary by insurer and job class and are not included.

The employee also pays from each check: 6.2% Social Security, 1.45% Medicare, 1.3% State Disability Insurance (SDI, which funds Paid Family Leave and has no wage cap in 2026), plus federal and state income tax withholding. You withhold those amounts and deposit them for the employee. Our small business payroll guide covers deposits and filing dates, and our small business budget guide shows where the new costs fit.

California’s 2026 FUTA bill is higher than most states’

Federal unemployment tax is 6.0% of the first $7,000 of each employee’s wages, normally cut to 0.6% by a 5.4% credit. Because California still owes federal unemployment loans, the Department of Labor set a 1.5% credit reduction for 2026 on Nov. 10, 2026. California employers pay about 2.1%, or $147 per employee, with the extra amount due with the fourth-quarter deposit.

Step 7: File on time every quarter

Each quarter you file the EDD’s Quarterly Contribution Return and Report of Wages (DE 9) and its continuation (DE 9C), even if you had no payroll. For the fourth quarter of 2026, the reports are due Jan. 1, 2027, and become delinquent if not filed by Feb. 1, 2027. On the federal side, Form 941 is due by April 30, July 31, Oct. 31 and Jan. 31. Keep payroll records for at least four years; both the IRS and the EDD require it. The EDD also runs free payroll tax webinars for new employers.

Common mistakes

  • Registering late with the EDD. The 15-day clock starts once wages pass $100 in a quarter.
  • Starting work before workers’ comp is in place. One uninsured day can bring a stop order and a $1,500-per-employee penalty.
  • Skipping the DE 4. The federal W-4 no longer sets California withholding.
  • Missing the I-9 deadline. Section 2 is due within three business days of the first day of paid work.
  • Paying monthly. Most non-exempt employees must be paid at least twice a month.

Key terms

  • Subject employer: an employer that pays more than $100 in wages in a calendar quarter and must register with the EDD.
  • DE 34: the EDD’s Report of New Employee(s), due within 20 calendar days of the start date.
  • Form I-9: the federal form that verifies identity and authorization to work in the United States.
  • Non-exempt employee: a worker paid at least minimum wage and entitled to overtime.
  • FUTA credit reduction: a cut in the federal unemployment tax credit for employers in states with unpaid federal unemployment loans; 1.5% for California in 2026.

The bottom line: hiring your first employee in California takes about a week of setup, not a month. Get your EIN, register with the EDD within 15 days of paying wages, put workers’ compensation in place before day one, complete the I-9, W-4 and DE 4, report the hire within 20 days, and pay at least $16.90 an hour twice a month, rising to $17.40 in 2027. Budget roughly 9% above wages for employer taxes, plus your workers’ compensation premium.

Free help in the Sacramento region

You do not have to work through these decisions alone. SCORE Sacramento pairs owners with volunteer mentors, many of them retired executives, bankers and accountants, at no cost. The Sacramento Valley Small Business Development Center offers free one-on-one advising on financing, budgeting and financial statements. The SBA’s Sacramento District Office can explain loan programs and connect you with lenders, and community lenders such as California Capital and Opening Doors serve owners who need smaller loans or extra support. Browse our Business Resources and the free business help guide for more.

Key takeaways

  • Register with the EDD within 15 days of paying more than $100 in wages in a calendar quarter.
  • Workers’ compensation is required in California even for one employee, before work starts.
  • Complete Form I-9 Section 2 within three business days and file the DE 34 within 20 days.
  • The minimum wage is $16.90 an hour in 2026 and $17.40 from Jan. 1, 2027.
  • Employer payroll taxes add roughly 9% to wages in 2026, before workers’ comp premiums.

Frequently asked questions

When do I have to register with the EDD as an employer?

The EDD says you become a subject employer when you pay more than $100 in wages in a calendar quarter, and you must register within 15 days. Registration is online through e-Services for Business.

Do I need workers’ compensation for just one employee in California?

Yes. Every California employer with employees, including family members, must carry workers’ compensation insurance. Being uninsured can bring a stop order and a penalty of at least $1,500 per employee.

What forms does a new employee fill out in California?

Form I-9 for work authorization, the federal Form W-4 and California’s DE 4 for withholding. The employer also gives the Labor Code 2810.5 wage notice and required pamphlets, and files the DE 34 new hire report.

What is the minimum wage in California for 2026 and 2027?

The statewide minimum wage is 16.90 dollars an hour in 2026. The Department of Industrial Relations announced it will rise to 17.40 dollars an hour on Jan. 1, 2027. Some cities set higher local rates.

How much does it cost to hire an employee beyond wages?

In 2026, employer payroll taxes in California add about 8 to 9 percent of wages for most small employers: 7.65 percent for Social Security and Medicare plus unemployment and training taxes on the first 7,000 dollars of wages. Workers’ compensation premiums come on top.

Sources

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Written by Kevin Phan, Merxco LLC
www.Merxco.com | Info@Merxco.com