California is home to some of the most complex and employee-friendly labor laws in the nation. As employment regulations continue to evolve, it is crucial for employers to stay up-to-date with legal requirements to avoid costly litigation and penalties. Below, we explore recent updates and best practices that every California employer should know.
1. Changes to Wage and Hour Laws
California’s minimum wage continues to rise annually. As of January 1, 2025, the state minimum wage has increased to $16.50 per hour for businesses with 26 or more employees and $16.00 per hour for smaller employers. Many local ordinances impose even higher minimum wage rates, so employers must stay vigilant to ensure compliance.
Additionally, overtime rules remain stringent. Non-exempt employees must receive:
- 1.5 times their regular pay rate for hours worked beyond 8 in a day or 40 in a week.
- Double-time for hours exceeding 12 in a day or 8 on the seventh consecutive workday.
Employers must also factor in all compensation, including commissions and non-discretionary bonuses, when calculating overtime rates.
2. Meal and Rest Break Compliance
Employers must provide non-exempt employees with:
- A 10-minute paid rest break for every 4 hours (or major fraction) worked.
- A 30-minute unpaid meal break for shifts longer than 5 hours.
- A second meal break for shifts exceeding 10 hours.
Failure to comply can result in premium pay obligations equivalent to one hour of the employee’s regular rate for each missed break.
3. Worker Classification Under AB5 and the ABC Test
California continues to enforce stringent restrictions on independent contractor classifications under Assembly Bill 5 (AB5). Employers must apply the ABC Test to determine whether a worker qualifies as an independent contractor. The employer must prove:
- (A) The worker is free from control and direction in their work.
- (B) The work performed is outside the usual course of the employer’s business.
- (C) The worker is customarily engaged in an independently established trade.
Misclassification can lead to penalties, back wages, and tax liabilities. Businesses should conduct regular audits to ensure compliance.
4. Expanded Paid Leave Requirements
California has expanded paid sick leave laws under the Healthy Workplaces, Healthy Families Act. In 2025, employers must provide a minimum of 5 days (40 hours) of paid sick leave per year, up from 3 days (24 hours) previously required. Accrued sick leave must be rolled over annually, subject to a reasonable cap. This applies to most workers, including full-time, part-time, and temporary employees.
Additionally, California Family Rights Act (CFRA) protections now extend to smaller employers (5 or more employees) and include leave for caring for a designated person, which may include non-family members.
5. Classification as Exempt or Non-Exempt Employment
To classify an employee as “exempt,” the employee must meet the specific criteria set forth in the Industrial Welfare Commission (IWC) Wage Orders. Most exemptions fall under three categories: (1) executive, (2) administrative, or (3) professional. To qualify, an employee must spend at least 50% of their workday performing duties that fit within these categories.
Exempt employees must also receive a guaranteed salary that is at least twice the state minimum wage. Employers should exercise caution when using variable compensation structures, such as commissions, to meet the salary threshold, ensuring that the employee’s earnings never fall below the required level.
6. Exempt Employee Wages
If an exempt employee performs any work during a workweek, they are generally entitled to their full salary for that week. Employers may not reduce an exempt employee’s pay for partial-day absences. However, a full-day deduction may be permissible under specific circumstances, such as when no work is performed for an entire day, provided the deduction is properly documented.
7. Vacation Policies
Although California does not mandate paid vacation, manyemployers offer it as an incentive. Accrued vacation is considered earned wages and must be paid upon termination. Employers cannot enforce “use-it-or-lose-it” policies; however, they may implement reasonable accrual caps. A generally accepted cap is 1.5 times the annual vacation allowance. For instance, if an employee earns 80 hours of vacation per year, the cap should not be lower than 120 hours.
8. Final Paycheck Compliance
Employers must promptly pay all wages owed upon an employee’s departure:
- Terminated employees: Payment is due on the same day as termination.
- Resigning employees (with 72-hour notice): Final wages must be paid on the last workday.
- Resigning employees (without notice): Payment is due within 72 hours.
Failure to comply can result in waiting time penalties, equivalent to the employee’s daily wage for each late day, up to 30 days.
9. Off-the-Clock Work
Employers may face costly penalties if they allow or require employees to perform work off the clock. Violations include:
- Requiring employees to clock out but continue working.
- Not compensating employees for time spent changing into mandatory protective gear.
- Failing to pay employees for time spent undergoing theft prevention inspections.
- Not compensating employees for picking up equipment before reporting to a job site.
To mitigate risk, employers should implement clear policies prohibiting off-the-clock work and ensure that all work performed is properly recorded and compensated.
10. Pay Transparency and Wage Disclosure
New laws require employers with 15 or more employees to disclose salary ranges for job postings. Additionally, employees may request pay scale information for their current position. Employers should ensure that wage structures are well-documented to prevent potential pay discrimination claims.
11. Remote Work Policies and Reimbursement Requirements
With remote work becoming a standard practice, California law requires employers to reimburse employees for necessary business expenses, including:
- Internet and phone usage for work.
- Home office supplies.
- Any employer-mandated software or security tools.
Employers should establish clear reimbursement policies and maintain documentation to avoid disputes.
12. Non-Compete Agreements Under Increased Scrutiny
California remains one of the most restrictive states regarding non-compete agreements. In 2025, new legislation strengthens prohibitions against restrictive covenants, rendering most non-compete agreements unenforceable—even for high-wage earners. Employers should revise contracts and focus on narrowly tailored confidentiality agreements instead.
13. Enhanced Disability Accommodation Requirements
Disability discrimination claims remain one of the most common lawsuits against California employers. Under the Fair Employment and Housing Act (FEHA), employers must:
- Engage in the interactive process when an employee requests accommodation.
- Provide reasonable accommodations, unless it creates undue hardship.
- Avoid retaliation or discrimination based on an employee’s disability status.
Failure to comply can lead to lawsuits, fines, and significant reputational damage.
Conclusion: Staying Ahead of California’s Employment Law Landscape
California employers must proactively monitor changes in employment laws to ensure compliance and minimize risks. To avoid costly penalties, businesses should:
- Conduct regular HR audits.
- Keep detailed payroll and compliance records.
- Implement clear policies on wage calculations, break periods, and classifications.
- Consult with experienced employment attorneys to navigate complex labor laws.
The Law Offices of Paul Cheng is committed to assisting employers in staying compliant with California’s evolving employment laws. For guidance on specific legal matters, contact our office today.