Before hiring an employee in CA, the employer needs to register with the state for 1. Employer Withholding Tax Licensure, and 2. Unemployment Tax Licensure.
The employee must sign and submit to the employer the federal Form W-4 and the state DE 4. The W-4 is used for federal income tax withholding calculation, and the DE 4 is used for California Personal Income Tax (PIT) withholding calculation.
The state of CA has the following four payroll taxes, of which two are contributed by the employer, and the other two are paid by the employee to the state.
In CA, the employer contributes for the following:
• Unemployment Insurance (UI) – This is a national unemployment insurance program that is administered by the Department of Labor US according to the Social Security Act. If an employee is unemployed with no fault at his/her end can apply for the temporary payment.
• Employment Training Tax (ETT) – This is an employer-paid tax that funds employee training at the targeted industries. This helps CA businesses to become more competitive in the marketplace by promoting a healthy labor market, investing in a skilled and productive workforce, and developing the worker’s skills.
The employee contributions to the state the following taxes, which the employer withholds from the employee paycheques:
• State Disability Insurance (SDI) – This program provides temporary benefits to an employee for non-work-related illness or injury, or pregnancy. This program also extended to fund Paid Family Leave (PFL) for people who can not work because they need to provide care for a seriously ill family member or bond with a new child or participate with a military family member in qualifying events,
• Personal Income Tax (PIT) – CA has a state-level income tax that imposes a tax on income for residents or non-residents generating income within the state of CA. The program is administered by the California Franchise Tax Board (FTB). The rate of withholding is based on the Employee’s Withholding Allowance Certificate (Form W-4 or DE 4) submitted by the employee to their employer.
CA offers the two withholding schedules
• Wage bracket table method
• Exact calculation method
CA law does not require an employer to pay any minimum vacation. It is up to the employer and depends on the employer’s vacation policy. All payments made to the employee during vacation or in lieu of vacation are considered wages and subject to payroll tax and withholding requirements.
An employee who works in CA for 30 or above days within a year is entitled to sick pay and will earn at least 1 hour of sick paid leave for every 30 hours worked unless the employee is covered by qualifying collective bargaining agreements or certain employees of airlines are not covered by this law.
Workers’ Compensation Insurance
An employer needs to get coverage for workers’ compensation insurance to cover injuries or illnesses suffered on the job. The employee who has suffered work-related illness or injury and he/she needs major medical attention needs to report to his employer in writing within 30 days.
• Report new employee – DE-34
• Report independent contractor – DE 542
• Quarterly contribution return and report of wages – DE 9
• Quarterly contribution return and report of wages – DE 9C
• Payroll tax deposit – DE 88/DE 88ALL
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information