California Payroll Updates Every Employer Should Review

California employers should review payroll settings, wage rates, employee deductions, notices, and reporting requirements at the beginning of each year. Even a small payroll error can result in incorrect paychecks, amended filings, penalties, or employee concerns.

1. California minimum wage increased

Effective January 1, 2026, the California minimum wage is $16.90 per hour for most employees, regardless of employer size. Some cities, counties, and industries require a higher minimum wage, so employers must confirm the rate that applies to each employee’s work location.

The statewide increase also raises the minimum annual salary threshold to $70,304 for many employees classified under California’s executive, administrative, or professional exemptions. Salary alone does not establish exempt status; the employee must also satisfy the applicable duties test.

2. California payroll tax rates changed

The California State Disability Insurance (SDI) withholding rate increased to 1.3 percent for 2026. All wages subject to SDI remain taxable, with no annual SDI wage limit.

The Employment Training Tax rate remains 0.1 percent on the first $7,000 of wages paid to each employee. Unemployment Insurance rates vary by employer, and new employers generally receive a 3.4 percent rate during their initial rating period. Employers should review their EDD rate notice and confirm that the 2026 California withholding schedules are installed in their payroll system.

3. Federal Social Security wage base increased

For 2026, Social Security tax applies to the first $184,500 of an employee’s wages. The rate remains 6.2 percent for the employee and 6.2 percent for the employer. Medicare tax continues to apply to all covered wages without an annual wage limit.

Employers should confirm that Social Security withholding stops only after an employee reaches the annual wage base with that employer.

4. Retirement contribution limits increased

The employee contribution limit for most 401(k), 403(b), and governmental 457 plans increased to $24,500 for 2026. Plans may permit an additional $8,000 catch up contribution for employees age 50 or older. Employees ages 60 through 63 may qualify for a higher catch up limit of $11,250, depending on the plan.

Employers should update payroll deduction limits and coordinate changes with their retirement plan administrator.

5. New California employee notice requirements

California employers must provide employees with an annual Workplace Rights Notice by February 1. The notice covers employee protections involving retaliation, workers’ compensation, organizing rights, immigration related practices, and workplace interactions with law enforcement. This notice must be provided every year.

Employers were also required to give employees an opportunity to designate an emergency contact by March 30, 2026. Larger private employers may have separate California pay data reporting obligations; reports covering 2025 workforce data were due May 13, 2026, for covered employers with 100 or more employees or labor contractor workers.

Review payroll requirements every year

Payroll rates, minimum wages, contribution limits, withholding schedules, employee notices, and filing requirements may change every year, and local requirements may differ from California statewide rules. Employers should regularly confirm current information through official government sources, including:

• California Employment Development Department
• California Department of Industrial Relations
• California Labor Commissioner’s Office
• Internal Revenue Service
• Social Security Administration
• Applicable city or county labor agencies

Austral Financial Services can help businesses review payroll records, payroll tax deposits, required filings, and financial reporting procedures.