Guide to Hiring for Your Business in California

When hiring for your business, the first step is to determine what type of workers you will use. Legally speaking, there are 2 types of workers: employees and independent contractors (aka freelancers). You will then need to know what paperwork to file, what rights your workers will have, and what intellectual property protections you will need.

Should I hire employees or independent contractors (freelancers)?

Businesses often struggle in deciding whether to hire people as employees or independent contractors (also called freelancers or consultants). Using independent contractors instead of employees can save money on taxes and mean less paperwork, but it also means that employers don’t have as much control over the independent contractors. Many employers try to have it both ways, and classify workers as independent contractors but also treat them as employees, setting their schedule and telling them how to do their job. This is known as “misclassifying” and can involve significant penalties.

See more about the pros/cons of each status and how to determine when someone should be classified as an independent contractor or employee.

Employees

What benefits am I required to provide to my employees?

It depends on how many employees you have.

If you have fewer than 5 employees, the primary benefits you need to provide to employees (regardless of whether “temp” or part-time vs full-time, etc) are:

• Paid sick leave: at least 3 days per year, or 1 hour for each 30 hours worked. Begins accruing upon hire, but may be used after 90 days.
• Workers compensation coverage: “Workers comp” insurance covers injuries or illnesses sustained on the job.¹Labor Code §3700, et seq.

Note that you must also pay various taxes as part of payroll, including unemployment insurance, and the employment training tax. These and the accrual of paid sick leave should all be calculated and handled by your payroll provider.

When you get to 5 or more employees, some additional requirements kick in, such as providing unpaid family and medical leave, and bereavement leave. See our Guide to Employee Leave Rights in California.

When you get to 50 or more employees, you will be required to provide health insurance, under the federal Affordable Care Act.

Do I need to provide paid vacation time or other paid time off, or holiday pay to employees?

No. See our Guide to Employee Leave Rights in California.

Do I need to provide any type of retirement benefits?

No, employers in California are not required to offer pensions or retirement plans to employees.

How do I onboard employees and set up payroll?

You will probably want to get a payroll company to assist with this. If you use a service like Gusto, it’s very manageable and not too costly.²NOTE: Law Soup Media may receive compensation from this vendor if you use any of their services. We have used every product we recommend, and we stand by them. Thank you for your support!

Onboarding

1. You and the employee should sign an employment agreement, or simply describe the terms of employment in an offer letter
2. The employee should fill out a W-4 (for you to complete the W-2s) and I-9 (to verify immigration status and work permit)
3. Set up payroll for the employee, and withhold taxes
4. Register new employee with the CA Economic Development Department (Form DE 34)
5. Recommended: Provide the employee with an employee handbook describing your company policies
6. Recommended: Confidentiality/non-disclosure agreement

Ongoing

1. Pay the employee through the payroll system you have set up, at the intervals you have agreed on (every 2 weeks, every month, etc)
2. File and pay payroll taxes (usually quarterly)
3. You would send a W-2 the following year by Jan 31 to both the employee and the IRS.
4. Workplace postings

What are other general employment laws I should know?

See our Employee rights page.

Freelancers

What benefits am I required to provide to my freelancers?

None, other than what is negotiated between you and the freelancer.

How do I onboard freelancers?

Onboarding

1. You and the freelancer should sign an independent contractor agreement
2. The freelancer should fill out a W-9 form (for you to complete the 1099)
3. If you will pay them at least $600 in the next year, and they are not taxed as a corporation, you need to file with the CA Economic Development Department and provide information about each independent contractor you hire.

Ongoing

1. The freelancer should invoice you for the work they have done.
2. Each year, for independent contractors who you paid at least $600 during the prior year, and who are not taxed as a corporation, you must send them a 1099 form by Jan 31 (and send it to the IRS by March 31). You generally do not withhold any taxes from them.

Intellectual Property

What intellectual property rights should I be aware of when hiring?

If you are hiring a freelancer to create any intellectual property (writing, art, design, etc.) for you, the freelancer actually owns that intellectual property unless you have a signed contract stating that you will own it (“work for hire” or “assignment” agreement). If not, you would simply have a “license” to use the work. See Copyright for more details.³CA Labor Code Secs. 2870, 3351.5(c))

If you are hiring an employee to create intellectual property, you generally will own the work as long as it is clear that they were hired specifically to do that work.

Further Resources

See our Guide to Small Business Resources

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