Hire Employees

Hiring staff requires compliance with local, state, and federal labor regulations. There are legal steps to follow before you hire employees. Below are resources and steps to guide you through the process:

• U.S. Small Business Administration (SBA) Guide on hiring and managing employees
• State of California Employment Development Department - Tax incentives for employees
• NOLO - DIY legal books and software resources
• NOLO - New employer to-do list by Bay Area legal advice publisher

Labor Requirements for Business 

Laws are in place to protect workers and potential hires, requiring you to treat your workers fairly, provide them with a safe workplace, and contribute to California’s unemployment insurance.

Classification of Workers 

Employee vs. Independent Contractor

If you are not sure how to classify a potential hire as an employee or independent contractor, use this Department of Industrial Relations "test" to help you figure it out.

Know what you can ask – during the hiring process, it is unlawful to ask about a job applicant’s age, sexual orientation, marital status, religious affiliation or race. Additionally, questions related to a physical, emotional or mental handicap can only be asked if an applicant will need special accommodations for performing a specific job. The US Department of Labor and the Equal Employment Opportunity Commission explains these rules in more detail. 

Insurance and Benefits

Worker’s Compensation Insurance

California requires employers with one or more employees have workers’ compensation insurance to protect workers who might suffer on-the-job injuries. If your employees get hurt or sick because of work, you are required to pay for workers' compensation benefits. Workers’ comp insurance provides six basic benefits: medical care, temporary disability benefits, permanent disability benefits, supplemental job displacement benefits or vocational rehabilitation and death benefits. If you do not currently have a broker or insurance carrier, you can learn more from and search for a list of carriers at the CA Department of Industrial Relations site. Side note – if you  are a roofer and don’t have any employees, you are still required to carry workers’ comp insurance. 

Temporary Disability Insurance

Employers are required by law to withhold and remit State Disability Insurance (SDI) contributions and to inform their employees of SDI benefits. To inform employees, you must provide them with the publications listed below. You can find these publications through the CA Employment Development Department.

• Notice to Employees: Unemployment Insurance/Disability Insurance Benefits (DE 1857A) – Advises employees of their right to claim Unemployment Insurance (UI), DI, and PFL benefits.
• State Disability Insurance Provisions (DE 2515) – For new hires and again when the employee notifies the employer they need to take time off from work due to their non-industrial medical condition.
• Paid Family Leave Benefits (DE 2511) – For new hires and again when the employee notifies the employer they need to take time off from work to care for a seriously ill family member or to bond with a new child. 

Unemployment Insurance (UI) and Taxes

California Unemployment Insurance

Once you bring on employees, you must pay California unemployment insurance taxes.  

• First, register with the CA Department of Industrial Relations. Later, at tax time, your payments will go to the state’s unemployment compensation fund, which provides short-term relief to workers who lose their jobs. 
• Unemployment Insurance (UI) is paid by every employer in California. Tax-rated employers pay a percentage on the first $7,000 in wages paid to each employee in a calendar year. The UI rate schedule and amount of taxable wages are determined annually.  

Occupational Safety and Health Act (OSHA)

You are required to comply with the Occupational Safety and Health Act (OSHA) by, among other things, providing a workplace free of hazards, training employees to do their jobs safely, notifying government administrators about serious workplace accidents, and keeping detailed safety records. 

Posting Notices

Certain posters that inform employees of both their rights and employer responsibilities under labor laws are required to be displayed in the workplace. Specifically, California employers must post all state and federal required posters, but you should check with your local jurisdiction for additional notices that must be displayed (e.g. the local minimum wage laws).  

• The CA Department of Industrial Relations maintains an updated list of the following posters, which are required for all employers. The list also includes notices that only apply to specific business types and sizes.
• Posters required by the US Department of Labor (DOL) and other federal agencies can also be found using the DOL First Step Poster Advisor search tool.

Obtain an Employer Identification Number  

Before hiring your first employee, you need to obtain an Employer Identification Number (EIN). This is also called a FEIN (Federal Employer Identification Number) or Tax ID, from the IRS. The number is necessary for reporting and filing employment taxes.  

• Federal Employee Identification Number - If you are employing one or more persons or will be a business partnership or corporation you must have an FEIN. You may apply online for free. Learn more about how to apply for an EIN at the IRS website.
• State Employer Identification Number – If you will be paying wages over $100 in a calendar quarter to one or more employees, then within 20 days you will need to submit a registration form through the Employment Development Department for a State Employer Identification Number (SEIN). Employer resources and helpful information can be found on the Employment Development Department website.

Set Up a Payroll System to Withhold Taxes 

The IRS requires that you keep records of employment taxes for at least four years – a good practice in general for helping you monitor the progress of your business. 

• Federal Income Tax Withholding - Every employee must provide their employer with a signed W-4 withholding exemption form so that you can withhold the correct amount from their paychecks. Employees may fill out a new W-4 form each year if they want to change their allowances. For more specific information, read the IRS Employer’s Tax Guide or check out the IRS website.

Verify Employee Eligibility

Federal law requires employers to verify an employee’s eligibility to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification, to confirm the employee’s citizenship or eligibility to work in the U.S. To verify citizenship, employers can only request the documentation specified on the I-9 form. Employers must keep each employees I-9 on file for three years after the date of hire or one year after the date of the employee’s termination, whichever is later.

Report New Hires to the State 

All employers are required to report newly hired and re-hired employees to California’s New Employee Registry within 20 days of their hire or rehire date. 

File Your Taxes 

Every year, employers must report the amount of wages paid and taxes withheld for each employee on a federal wage and tax statement. This report is filed using Form W-2, wage and tax statement which employers must complete for each employee.  

By the last day of February, employers must send Copy A of their employees W-2 forms to the Social Security Administration to report wages and taxes of your employees for the previous calendar year. In addition, employers should send copies of W-2 forms to their employees by January 31 of the year following the reporting period. Learn more by visiting the Social Security Administration website.