California employee benefits compliance.
A plain-English guide to what California employers must offer, what the state runs for you, and where federal law (ACA, ERISA, COBRA) layers on top. Written for small and mid-sized employers trying to stay compliant while they grow.
Get the 2026 CA Employee Benefits Guide.
Disclaimer: This guide is for informational purposes only and does not constitute legal, tax, or insurance advice. Laws change frequently; consult a licensed professional for your specific situation.
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The California employer compliance stack.
California layers state mandates on top of the federal baseline. Here is the short list, in the order employers usually run into them.
- Workers' compensation insurance — mandated from day one, first employee
- State Disability Insurance (SDI) and Paid Family Leave (PFL) — employee-funded, employer-administered
- Unemployment Insurance (UI) and Employment Training Tax (ETT) — employer-paid payroll taxes
- Paid sick leave — 40 hours / 5 days minimum (state), higher in several cities
- ACA employer mandate — applies at 50+ full-time equivalents
- ERISA plan documents, SPDs and Form 5500 for group health and welfare plans
- COBRA (20+ employees) or Cal-COBRA (2–19 employees) continuation
- CalSavers retirement program — mandated if you don't sponsor a qualified plan
What California runs on your behalf.
These are not benefits you shop for — they are payroll obligations administered by the state. Getting them wrong is almost always a payroll setup issue, not an insurance issue, which is exactly why we work so closely with our sister Blue Ocean Payroll team.
State Disability Insurance (SDI)
Short-term wage replacement for non-work-related illness or injury. Funded through employee payroll deductions (2026 SDI rate is set annually by the EDD). Employers must withhold, remit, and post the DE 2515 notice.
Paid Family Leave (PFL)
Up to 8 weeks of partial wage replacement to bond with a new child or care for a seriously ill family member. Runs through SDI, funded by the same employee deductions. Job protection comes from CFRA/FMLA, not PFL itself.
Unemployment Insurance (UI) & ETT
Employer-paid payroll taxes on the first $7,000 of each employee's wages (California's taxable wage base). Rates vary by experience; new employers pay the standard new-employer rate.
Workers' Compensation
Required from the moment you hire your first employee. Every California employer must carry a workers' comp policy or be self-insured. This is not optional and not something we can waive for small teams.
Paid sick leave, CFRA, and local ordinances.
Paid Sick Leave (state)
Under the Healthy Workplaces, Healthy Families Act, employers must provide at least 40 hours (5 days) per year. Accrual (1 hour per 30 worked) or front-load — both legal, but the details matter for compliance.
California Family Rights Act (CFRA)
Employers with 5+ employees must provide up to 12 weeks of job-protected leave for family and medical reasons. Runs parallel to (and can exceed) federal FMLA.
Local sick-leave ordinances
San Francisco, Los Angeles, San Diego, Berkeley, Emeryville, Oakland, Santa Monica and West Hollywood all require more than the state minimum. If you employ people in these cities, the higher local rule applies.
ACA, ERISA and the group health stack.
California does not require employers to offer health insurance — federal law does, at 50+ full-time equivalents. But once you do sponsor a plan, ERISA and California-specific rules kick in and stay with you at every size.
Applicable Large Employers (50+ FTE) must offer affordable, minimum-value coverage to full-time employees and their dependents, or face IRS §4980H penalties. Forms 1094-C and 1095-C are filed annually.
Any employer-sponsored group health, dental, vision, life or disability plan needs an ERISA plan document and Summary Plan Description (SPD) — even for small employers. Wrap documents are how most agencies bundle this.
Required for welfare plans with 100+ participants at the start of the plan year (fully insured, self-funded, or level-funded). Missing filings carry per-day penalties.
Employers with 20+ employees on more than half of typical business days must offer up to 18 months of continuation coverage after a qualifying event.
California requires similar continuation for small employers (2–19). It can also extend federal COBRA up to a combined 36 months of coverage for certain qualifying events.
Group plans in CA cannot discriminate based on health status. Small group rating uses age, geography, and family tier — not medical history.
CalSavers is now the default.
California employers with 1 or more employees must either sponsor a qualified retirement plan (401(k), SEP, SIMPLE, pension) or register for CalSavers, the state-run Roth IRA program. There is no more small-employer exemption. Penalties for non-registration start at $250 per eligible employee and escalate.
For most growing employers, sponsoring a real 401(k) — often bundled with payroll — is a better talent story than CalSavers. We help evaluate both.
A PEO can absorb most of this — but only when it's the right fit.
A Professional Employer Organization becomes co-employer of record, taking on payroll tax filings, workers' comp, and much of the compliance burden above. That's a real advantage — and a real cost. Our PEO evaluation quantifies whether it actually pencils for your team, or whether a well-designed stand-alone benefits + payroll + HRIS setup gets you the same outcome for less.
Authoritative resources
Every item on this page ties back to a federal or California agency. Bookmark these alongside our Open Enrollment Guide and Compliance Checklist.
U.S. Department of Labor — EBSA
ERISA, Form 5500, notices, SBCs.
IRS — ACA for Employers
1094-C/1095-C, affordability, Section 125, PCORI.
CMS — Creditable Coverage & RxDC
Medicare Part D disclosures, prescription-drug reporting.
Covered California for Small Business
CA small-group SHOP marketplace.
CA EDD — SDI & PFL
State disability insurance and paid family leave.
CA Civil Rights Department
CFRA, PDL, reproductive-loss and bereavement leave.
CA Labor Commissioner — Paid Sick Leave
Accrual, caps, and local ordinance overlay.
CalSavers Retirement
State-mandated retirement program.
This is a guide, not legal advice.
California benefits rules move every legislative session, and city ordinances can be stricter than state law. Use this page to orient — then let us walk through your specific headcount, locations, and existing benefits to build the right compliance stack. There is no cost to work with us.