Guide to Legally Required Employee Benefits in California

Employer Benefit Laws in California

California employers must comply with both federal and state laws regarding employee benefits. While federal laws like the Affordable Care Act (ACA) set nationwide requirements, California has additional mandates that expand employee protections. These laws apply to various aspects of employment, including health insurance, paid leave, retirement plans, and workplace safety.



Employers with at least one employee must follow California's strict labor and benefits regulations. Some requirements, such as workers’ compensation insurance and payroll tax contributions for Social Security and Medicare, apply to all employers. Others, like CalSavers (the state-mandated retirement program), apply to businesses with five or more employees—soon to include those with just one employee by December 31, 2025.

California Employee Benefits Requirements

California’s employee benefits laws build upon federal requirements, often expanding protections for workers. Employers must provide certain benefits to employees, including health and welfare programs, paid leave, and payroll-based contributions. Unlike optional perks such as bonuses or voluntary benefits, these legally required benefits are non-negotiable.



Some benefits, like workers’ compensation insurance and payroll taxes for Social Security and Medicare, apply to all employers, regardless of size. Others, such as CalSavers, currently apply to businesses with five or more employees but will extend to those with just one employee by the end of 2025. Additionally, California mandates paid sick leave and offers programs like Paid Family Leave (PFL) and State Disability Insurance (SDI) to support workers facing health or family-related needs.

Health and Welfare Benefits Required by Law in California

California employers must comply with several mandatory health and welfare benefit laws, many of which expand upon federal requirements. These regulations allow employees to have access to essential protections, from health insurance to retirement plans. Below, we break down key benefit requirements that all California employers need to understand.

Health Insurance Requirements

Under the federal Affordable Care Act (ACA), employers with 50 or more full-time equivalent employees (FTEs) must offer affordable health insurance that meets minimum essential coverage requirements. While smaller businesses are not required to provide health insurance, California’s individual mandate imposes penalties on residents without coverage, which can increase employee demand for employer-sponsored plans.

Employers who offer group health insurance must verify their plans comply with both federal and state laws, including coverage mandates such as mental health services, maternity care, and preventive care. Additionally, California requires employers to offer coverage to registered domestic partners if they provide benefits to spouses.

While the ACA defines full-time employees as those working 30 or more hours per week, part-time employees do not automatically qualify for employer-sponsored coverage. However, some California employers voluntarily extend benefits to part-time workers to enhance recruitment and retention, and certain city-specific ordinances, such as San Francisco’s Health Care Security Ordinance (HCSO), impose additional health care spending requirements on part-time employees.

Workers’ Compensation Insurance

Workers’ compensation insurance is legally required for all California employers, regardless of size or industry. This coverage provides medical benefits and wage replacement for employees who suffer work-related injuries or illnesses. Even businesses with only one employee must carry a policy, and failing to do so can result in significant penalties.



While not a traditional employee benefit, workers’ compensation is crucial because insurers will not issue a group health insurance policy without proof of coverage. Many employers overlook this requirement, leading to compliance issues and potential liability.

California COBRA and Cal-COBRA Requirements

Federal COBRA law allows employees at companies with 20 or more employees to continue their group health insurance for a limited time after leaving their job, provided they pay the full premium. California extends this coverage further through Cal-COBRA, which applies to businesses with 2–19 employees. This ensures that employees and staff at smaller companies still have access to continuation coverage.



Employers must provide timely COBRA or Cal-COBRA notices to departing employees, ensuring they understand their rights and options for maintaining health insurance coverage. Failure to comply with these notice requirements can result in fines.

Retirement Plan Requirements

California employers with five or more employees must either offer a qualified retirement plan, such as a 401(k), or register with CalSavers, the state-run retirement program. This requirement will expand to businesses with just one employee by December 31, 2025.



Employers do not contribute to the plan but must facilitate enrollment and remain compliant with reporting requirements. Businesses that fail to register may face penalties.

Social Security and Medicare Contributions

All California employers must contribute to Social Security and Medicare (FICA) taxes on behalf of their employees. The current rates are:



• Social Security: 6.2% of an employee’s wages, up to an annual wage cap
• Medicare: 1.45% of all wages, with an additional 0.9% Medicare surtax for high earners (income above $200,000 for individuals)

Employers must match these contributions, ensuring employees receive these essential federal benefits upon retirement or disability.

Health Care Security Ordinance (HCSO) – San Francisco

Employers operating in San Francisco with 20 or more employees (50 or more for nonprofits) must comply with the Health Care Security Ordinance (HCSO). This ordinance requires businesses to spend a minimum amount on health care for employees working at least 8 hours per week in San Francisco.



Covered employers can meet this requirement through health insurance premiums, health reimbursement accounts (HRAs), or contributions to the city’s Healthy San Francisco program. Employers must track and report their spending to remain compliant.

Section 125 Plans and Compliance Considerations

California law sets strict requirements on employee benefits, but businesses can still offer tax-advantaged options like Section 125 plans, also known as cafeteria plans. These plans let employees use pre-tax dollars to pay for things like health insurance premiums, Flexible Spending Accounts (FSAs), and commuter benefits. Lower taxable income means savings for both employees and employers.

That said, compliance comes with a few key rules:

• Non-Discrimination Testing (NDT): Section 125 plans can’t favor highly compensated or key employees. Businesses need to run annual tests to confirm fairness. Failing could mean losing the plan’s tax benefits.
• Plan Documents: Every cafeteria plan needs a formal written document. This outlines benefits, eligibility, and participation guidelines.
• Election and Changes: Employees typically make benefit choices during open enrollment. After that, changes only happen after major life events like marriage or having a child.

Section 125 plans can be a great way to add flexibility while keeping costs manageable. However, nnavigating the details takes careful planning. This is where a knowledgeable benefits advisor can help keep everything on track and compliant.

Required Leave Benefits in California

California employers must provide various leave benefits that go beyond federal requirements. These laws guarantee employees can take time off for health, family, and personal needs without jeopardizing their employment. Below are the key leave benefits required under California law:

Paid Sick Leave

Under the Healthy Workplaces, Healthy Families Act, California requires all employers, regardless of size, to provide paid sick leave to employees who work at least 30 days in a year. Employees accrue a minimum of one hour of sick leave for every 30 hours worked, with a yearly usage cap of at least 40 hours or five days, depending on the employer’s policy. Some cities, like San Francisco and Los Angeles, have even stricter sick leave requirements.

Employers must track accruals, allow employees to carry over unused sick leave, and include balances on pay stubs. Violations can result in fines and back pay.

Family and Medical Leave

California’s Family and Medical Leave laws expand upon the federal Family and Medical Leave Act (FMLA). Under the California Family Rights Act (CFRA), employers with five or more employees must provide up to 12 weeks of unpaid, job-protected leave in a 12-month period for:

• A serious health condition (employee or a family member)
• Bonding with a new child (birth, adoption, or foster care)
• A qualifying military family need



Unlike FMLA, CFRA covers more family members, including adult children, siblings, and grandparents. Employers must continue health insurance benefits during leave and restore employees to their original or equivalent position upon return.

Paid Family Leave (PFL)

California’s Paid Family Leave (PFL) program provides partial wage replacement for employees taking leave to care for a seriously ill family member or bond with a new child. All private-sector employers must facilitate PFL through State Disability Insurance (SDI) payroll deductions.



Employees can receive up to 70% of their wages (capped at state-mandated limits) for up to eight weeks. Unlike CFRA, PFL is a wage replacement benefit rather than job-protected leave. However, employers cannot retaliate against employees for taking PFL.

Additional Legally Required Benefits in California

Beyond health and leave benefits, California mandates several additional protections for employees. These benefits secure financial stability in cases of illness, job loss, or other life events.

State Disability Insurance (SDI)

California requires employees to contribute to State Disability Insurance (SDI) through payroll deductions. SDI provides partial wage replacement for employees who cannot work due to a non-work-related injury, illness, or pregnancy.



Employers must withhold the required SDI percentage from employee wages and remit contributions to the state. Unlike workers’ compensation, SDI does not require employer funding, but businesses must facilitate employee participation.

Unemployment Insurance (UI)

California employers must pay into the state’s Unemployment Insurance (UI) program, which provides financial assistance to employees who lose their jobs through no fault of their own. Eligibility for UI benefits depends on factors like prior earnings, job separation circumstances, and availability for work.



Employers are responsible for paying UI taxes based on employee wages. The Employment Development Department (EDD) oversees the program and determines employer contribution rates annually.

Employment Training Tax (ETT)

The Employment Training Tax (ETT) is a California-specific payroll tax that funds workforce training programs for employees in eligible industries. Employers subject to UI tax must also pay ETT, which helps subsidize retraining programs for workers to develop new skills and remain employable.



Employers must maintain accurate payroll reporting to comply with ETT regulations. While the tax is relatively small, failure to pay can result in penalties.

Paid Time Off for Voting

Final Wage Payment

When an employee leaves a job, California law mandates strict final paycheck timelines:



• Voluntary resignation: Wages must be paid within 72 hours
• Termination or layoff: Wages must be paid immediately upon dismissal

Final wages must include all earned wages, unused vacation time (if applicable), and commissions. Employers who delay payment may face penalties equal to the employee’s daily wages for each late day, up to 30 days.

Notice and Reporting Requirements for California Employers

California employers must comply with various notice and reporting obligations to inform employees of their rights and maintain compliance with state and federal laws. These requirements include workplace postings, employee notifications, and documentation retention.

Employers must display mandatory posters covering wage laws, discrimination protections, and leave entitlements. Notices about Paid Family Leave (PFL), State Disability Insurance (SDI), workers’ compensation, and COBRA/Cal-COBRA must be provided at the time of hire or when an employee becomes eligible.

Additionally, employers must furnish detailed wage statements with each paycheck, including hours worked, deductions, and accrued paid sick leave. Compliance also requires proper documentation of leave requests, final wage payments, and employee benefit elections.



Failing to meet notice and reporting obligations can result in penalties. Keeping accurate records, staying updated on legal changes, and regularly reviewing required postings help businesses maintain compliance and avoid legal risks.

How to Stay Compliant with California Employee Benefits Laws

Staying compliant with California’s employee benefits laws requires proactive management and ongoing awareness of state and federal regulations. Employers should regularly review their benefit offerings, update workplace policies, and ensure all required notices are properly displayed. Maintaining accurate payroll records and meeting reporting deadlines for taxes, leave benefits, and retirement plans is also essential.

Given California’s frequently changing employment laws, businesses should stay informed about updates to paid leave, retirement plan requirements, and local ordinances. Partnering with a knowledgeable employee benefits advisor can help ensure compliance and prevent costly penalties.

At AEIS, we specialize in guiding businesses through California’s complex benefits landscape. Whether you need help structuring a compliant benefits package, navigating new regulations, or streamlining your administrative processes, we’re here to assist. Contact us today to discuss how we can support your business and keep you compliant.

Disclaimer: Any information related to compliance, laws and regulations, or other subject matters in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. The content of this blog is based on the most up-to-date information that was available on the date it was published and could be subject to change. Should you require further assistance or legal advice, please consult a licensed attorney.