Small Business Owner FAQs: California Payroll 2023

A small business owner types on a calculator, working on payroll.

Small Business Owner FAQs: California Payroll 2023

As your small business grows, so can the questions. Tax rates? Benefits? Reporting? PayrollCentric answers the most asked questions in California’s ever-changing payroll landscape.

What is the new minimum wage in California?

On January 1, 2023, the base minimum wage in California increased to $15.50/hour.

Wages in your city may be higher, and might depend on company size. The minimum rate in Mountain View, for example, is $18.15/hour. In West Hollywood, the minimum wage is $17 or $17.50 based on whether you have more or less than 50 employees.

2023 state payroll tax rates and taxable wage limits in California

California Personal Income Tax (PIT): The higher your earnings, the higher your income tax rate due to California’s progressive income tax structure. The taxable wage limit is $7,000 per employee. PIT is withheld from all workers in the state, including non-residents.

2023 Personal Income Tax Rates in California:

  • $0-8,808: 1.00%
  • $8,809-20,882: 2.00%
  • $20,883-32,959: 4.00%
  • $32,960-45,752: 6.00%
  • $45,753-57,823: 8.00%
  • $57,824-295,372: 9.30%
  • $295,373-354,444: 10.30%
  • $354,445-590,741: 11.30%
  • $590,742-999,999: 12.30%
  • $1,000,000+: 13.30%

State Disability Tax: Also withheld from your employee, State Disability maxes out at $1,378.48 per employee in 2023.

    • 0.9% up to $153,164

Employment Training Tax (ETT): ETT is paid by you, the employer. Your annual payment caps out at $7 per worker.

    • 0.1% on the first $7,000 per employee

Unemployment Insurance (UI): The cost of UI is determined annually by the State of California Employment Development Department. UI is also paid by employers.

    • up to 6.2% on the first $7,000 per employee
    • New employers (first 2-3 years): 3.4% on the first $7,000 per employee

Small Business Employee Benefits FAQs

What are the differences between retirement plans?

  • Simple IRA Plans: Customized specifically for small companies with fewer than 100 workers, employees contribute a portion of their salary, with a fixed contribution from their employer.
  • 401(k) Plans: Employees contribute a portion of their pay—tax-deferred—to retirement savings. Employers can match a portion of that contribution, a popular potential benefit for employees.
  • Individual Retirement Account (IRA) Plans: Individuals invest for retirement with some varying tax advantages, depending on the type of IRA. The two most common are Traditional and Roth.
  • Simplified Employee Pensions (SEP) Plans: Employers make tax-deductible contributions based on the employee’s salary.

Am I required to offer health insurance?

You are not required to offer a health plan until you have 50 employees or more, but it can be an advantage in talent recruitment.

Are there really tax advantages to offering health insurance?

Yes. Everything you pay for your employer-sponsored plan is tax deductible at the state and federal level And, if your small business has less than 25 employees, it may qualify for the Small Business Health Care Tax Credit.

Can a small business offer a Health Savings Account?

If your employees have high-deductible health insurance, contributing to a Health Savings Account (HSA) can be a great benefit for your employees. 

Are there HSA contribution limits?

There are no minimum contributions for small business owners. HSA withdrawals are tax-free for your employee, and all HSA contributions are tax-deductible for both parties.

Are there really tax advantages to HSA contributions?

Yes, all contributions to HSAs are tax deductible. Withdrawals for qualified expenses are tax-free, and dividends are tax-deferred.

Do I have to offer paid sick leave in California?

Yes. You must provide 24 hours of paid sick leave to employees who have worked for you for at least 30 days. Sick leave minimum accrues at 1 hour per every 30 hours worked.

Am I required to offer paid time off (PTO) in California?

No. You are not legally obligated to offer paid time off to your employees, but it’s a benefit many prospective employees like to see when considering a new position.

Payroll Reporting FAQs

How long do I have to report new employees to the state?

You must report a new hire or rehire to the New Employee Registry (NER) within 20 days of their start date.

What am I required to file for the new payscale law (SB 1162)?

California’s Pay Transparency Law went into effect in January 2023. All business owners of all business sizes must track and report payscale ranges. Specific payscale range reporting requirements vary depending on the business.

Do I need to file Certified Payroll Reports?

You need to file CPRs if you are managing a government-funded project that costs $2,000 or more. 

California Small Business C Corporation FAQs

What is the annual tax rate for C Corporations in California?

$800 or 8.84% of your net income, whichever is greater

My business operated at a loss. Do I still have to pay C Corps state tax?

Yes, if your C Corps operated at loss, or even went inactive, you must pay this tax.

Types of Employee Timekeeping for Small Business

Manual: Pen, paper, and a calculator (1-5 employees)

Manual Timesheets: Input and calculate employee hours with Excel or Google Sheets (5-10 employees)

Timekeeping App: Use an app to automate timekeeping to save labor costs and increase efficiency (10+ employees)

See more on timekeeping tips for small businesses.

Helpful Resources

  • Cal/OSHA Publications: Find current workplace safety, minimum wage, and all other posters that you are required to post in your business from the State of California Department of Industrial Relations.
  • California Sales Tax Rates: The base sales tax in California is 7.25%, with most local jurisdictions adding a rate of 0.1-1%.

Is managing payroll and human resources keeping you from your actual work?

Starting a business and growing a business are extremely exciting—and hectic—times. If payroll is pulling you away from your real work or creating unnecessary stress, we’re here to help. PayrollCentric is a relationship-focused leader in payroll, timekeeping, and workforce management in southern California since 2005. Give us a call at 310-258-9703 or schedule a demo to see how our all-in-one HRIS software can simplify your business.