Hiring your first employee in California

What do you have to register for before your first payroll?

California does not have a separate income tax withholding account. One EDD payroll tax account number covers all four state payroll taxes at once, so you register once rather than opening several accounts.

Does California require income tax withholding?

Yes. You register with the California Employment Development Department (EDD), within 15 days after you pay more than $100 in wages in a calendar quarter.

The trap is the trigger amount. It is $100 in wages in a calendar quarter, not $100 per employee and not an annual figure, so almost any real hire crosses it in the first pay period and starts the 15 day clock. Household employers get a higher trigger of $750 in cash wages in a quarter.

What unemployment insurance does California charge a new employer?

A new California employer pays 3.4% on the first $7,000 each employee earns, so roughly $238 per employee in the first year. New employers pay 3.4% for the first two to three years, charged only on the first $7,000 of each employee's wages a year. After that you move to an experience rate based on your own layoff history, and for 2026 California is on Schedule F+, running 1.5% to 6.2%. An Employment Training Tax of 0.1% sits on top of the same first $7,000.

Do you need workers compensation insurance in California?

Yes, from your first employee. California sets no headcount to reach, so there is no free window before coverage is required.

Required from your very first employee, with no small employer exemption. Going without it is not just a fine: it is a misdemeanor carrying up to a year in jail and up to $10,000, the state can add penalties up to $100,000, and it can issue a stop order that legally bars you from using any employee labor until you are covered. Buy the policy before the first day worked.

How quickly must you report a new hire in California?

Within 20 calendar days of the employee's start-of-work date. Reports go to the California Employment Development Department, New Employee Registry.

The clock runs from the first day they actually performed services for wages, not the day they signed the offer letter. A rehire counts as a new hire and must be reported again if the worker was off your payroll for at least 60 consecutive days.

Does California have paid family leave or state disability insurance?

State Disability Insurance is withheld from the employee at 1.3% for 2026 and, unusually, has no wage cap at all, so it applies to every dollar of a high earner's pay. It was 1.2% in 2025, so it moves annually. There is no employee-count threshold: it applies from the first employee.

Do you need a sales tax permit in California?

The permit itself is free and you apply online. Register before your first sale rather than after, because the statute requires anyone who wants to conduct business as a seller to file the application first, and selling without a permit exposes you to fines and penalties.

Security deposits. CDTFA can require a security deposit at registration to cover tax that would go unpaid if the business later closed. The amount is set case by case during the application, so there is no fixed figure to plan around.

Does a marketplace like Amazon or Etsy handle the tax for you?

In force since October 2019. If you sell only through a registered marketplace, the platform is treated as the retailer and you do not register for those sales. The catch is the word only: the moment you also sell direct, through your own website or in person, you are the retailer on those sales and your own duties come back. Keep written confirmation that your marketplace is actually CDTFA registered.

If your sales drop, when can you stop collecting?

California does not publish a rule it calls trailing nexus, but its statute produces the same effect for a full year. You must register and collect once deliveries into California pass the threshold during the preceding or current calendar year. Because the prior year counts, a big year followed by a quiet one still leaves you collecting through all of that quiet year. Do not close a permit the moment sales drop off.

Does California charge a tax on revenue rather than profit?

California has no gross receipts tax at state level. Some cities, notably San Francisco and Los Angeles, levy their own local gross receipts taxes, so check the city you are actually operating in.

Do you have to register your out-of-state company in California?

$70 to register a foreign LLC on form LLC-5, $100 for a foreign stock corporation, $30 for a foreign nonprofit.

An out-of-state business transacting intrastate business in California must register before operating. Registering is only the entry ticket: it also pulls you into California's annual entity filing and franchise tax obligations, and you will need a California agent for service of process named on the form.

Where these figures come from

Every number on this page was read on California's own agency pages, its statute, or a current-year official form, and this record was last reviewed on 2026-09-08. Where a state's explainer page disagreed with its statute or its current form, we followed the statute or the form and said so in the relevant section, because a state's consumer-facing pages are often the last thing updated when a figure changes.

Anything we could not confirm on a primary source is left blank rather than estimated. A missing figure on this page means we could not verify it, not that it is zero.

This is general information, not legal or tax advice. Rules change and your circumstances matter. Confirm anything you are about to act on with the agency named beside it.