Are You a California Small Business Private Employer?

For purposes of this blog, “California Small Business Private Employer” are defined as private California employers who employ fewer than 50 employees. A “private employer” refers to any employer that is not a government employer, regardless of whether the employer is publicly traded. The information and recommendations below may or may not apply to unionized work environments subject to collective bargaining agreements (CBAs). Unless stated otherwise, the employment laws listed below become effective on January 1, 2026. We have only included employment laws specifically focused on privately owned, non-unionized, small private business employers (with 1 to 49 employees).

In most cases, California employment laws are applicable to small business private employers based on employee headcount. Thus, to determine employee headcount you will want to include all employees who are on the payroll. This means you would count temporary, full time or part time, active or inactive employees (such as employees who are on a leave of absence). Some laws even include independent contractors and unpaid interns in the headcount. So, pay attention to the issue of applicability of the specific law.

Top Eleven 2026 Employment Laws for California Small Business Private Employers

As you scroll down this Blog you will find:

1. A list of top 2026 Employment laws applicable to California small business private employers. Each law includes a clickable link to the actual text of the law.
2. A summary of important provisions of each new law.
3. Recommended compliance actions to proactively come into compliance and reduce the legal risks of claims and lawsuits, including expensive PAGA penalties.

IMMIGRATION

1. SB 294– Workplace Know Your Rights Act

Annual Notice Requirement

Employers are required to provide a stand-alone written notice to all current employees by February 1, 2026, and annually thereafter, as well as to new hires upon employment. Employers shall keep records of compliance with these requirements for three years, including the date each written notice is provided or sent to employees.

The notice shall contain a description of workers’ rights in the following areas:
(1) The right to workers’ compensation benefits, including disability pay and medical care for work-related injuries or illness, as well as the contact information for the Division of Workers’ Compensation.
(2) The right to notice of inspection by immigration agencies pursuant to Labor Code Section 90.2.(3) Protection against unfair immigration-related practices against a person exercising protected rights.(4) The right to organize a union or engage in concerted activity in the workplace.
(5) Constitutional rights when interacting with law enforcement at the workplace, including an employee’s right under the Fourth Amendment to the United States Constitution to be free from unreasonable searches and seizures and rights under the Fifth Amendment to the United States Constitution to due process and against self-incrimination, including your right to remain silent, your right to record interactions with law enforcement in public spaces and your right to an attorney.

Labor Commissioner- California Workplace- Know Your Rights Notice: English, Spanish. More languages will be forthcoming. Additionally, the Labor Commissioner must develop a video for employees advising them of their rights and for employers advising them of their rights by July 1, 2026.

Worker Arrest Notice Requirement

Employers must notify an employee’s designated emergency contact if the employee is arrested or detained at the worksite, and must provide employees the opportunity to designate an emergency contact by March 30, 2026, for an existing employee, and at the time of hiring of a new employee hired after that date.

The employer shall also allow an employee to provide updated emergency contact information through the duration of employment. The employer shall allow the employee to indicate whether the emergency contact should be notified if the employee is arrested or detained on their worksite, or during work hours or during the performance of the employee’s job duties, but not on the worksite, if the employer has actual knowledge of the arrest or detention of the employee.

Please contact our office if you would like us to email you a sample “Emergency Contact Form” that addresses contacts for workplace safety and medical emergencies (voluntary) and the notice to provide Arrest/Detention Emergency Contact (employer required to provide notice; employee may choose to provide contact information).

Compliance Recommendations:

• Download and distribute “Know Your Rights” notice to all current employees no later than February 1, 2026.
• Incorporate the notice into new hire onboarding materials
• Establish an annual distribution system (same date each year)
• Use the employer’s normal communication method (email, text, personal service, etc.)
• Ensure notice can reasonably be anticipated to be received within one business day of sending
• Create a process for employees to designate emergency contacts by March 30, 2026
• Update HR systems to capture and maintain emergency contact information
• Develop protocols for notifying emergency contacts in case of arrest/detention at worksite
• Train supervisors and security personnel on emergency contact notification requirements
• Maintain proof of delivery/distribution of annual notices

LEAVES OF ABSENCE (PROTECTED TIME OFF)

2. AB 406-Victims of Violence

This law expands California’s paid sick leave provisions under the Healthy Workplaces, Healthy Families Act. Effective October 1, 2025, employees may now use paid sick leave if they or a covered family member are victims of certain crimes and need to attend related judicial proceedings, including delinquency hearings, bail or release determinations, plea or sentencing hearings, postconviction proceedings, and hearings where the victim’s rights are at stake. A “victim” includes individuals harmed physically, psychologically, or financially as a result of violent felonies, serious felonies, or felony theft and embezzlement.

Additionally, employers are required to inform employees of their rights under this law to new employees upon hire, annually and to other employees upon request. The California Family Rights Notice “Survivors of Violence and Family Members of Victims Right to Leave and Accommodations” may be found here. [CRD E20N-ENG/May 2025]- Spanish.

If You or Your Family Member is a Victim of Violence, You Have These Rights:

(a) Right to Take Time Off of Work
(1) Right to take time off work for jury service or to appear in court as a witness to comply with a subpoena, or court order.
(2) Right to take time off of work to get relief (like a restraining order) to protect you or your child’s health, safety, or welfare.
(3) If you are a victim of violence or the family member of a deceased victim of violence, you can take up to 12 weeks oof work for any of these reasons. If you are the family member of a living victim of violence but are not yourself a victim, you may take up to 10 days off work for these reasons, with the exception of relocation, for which you can take up to five days.
(4) You may use available paid time off, vacation, or paid sick leave for any of the reasons described in the notice.
(5) You must give advance notice, unless it is not possible. If you do not give advance, your employer cannot discipline you if you provide documentation to the employer within a reasonable time supporting the reason for your absence.

(b) Right to Confidentiality
Your employer must keep information about your request for time off or reasonable accommodation confidential unless federal or state law requires disclosure, or disclosure is necessary to protect your safety at work. If your employer plans to disclose information about you or your circumstances, your employer must tell you in advance.
(c) Right to Reasonable Accommodation for Your Safety
Your employer may ask you for a statement certifying that your request is related to being a victim or the family member of a victim. Your employer must work with you to make a reasonable accommodation to make sure you are safe at work.

d) Right to Be Free from Retaliation and Discrimination
Your employer cannot discipline you, treat you differently, or fire you because of exercising your rights under AB 406.
(e) May be eligible for the Benefits: Wage Replacement, State Disability Insurance, Paid Family Leave, Family and Medical Leave, Bereavement Leave or Leave to Attend Court for certain crimes.

Compliance Recommendations:

• Update paid sick leave policies immediately to reflect expanded coverage; post updated paid sick leave poster: HEALTHY WORKPLACES/HEALTHY FAMILIES ACT OF 2014 PAID SICK LEAVE
• Distribute “Survivors of Violence and Family Members of Victims to Leave and Accommodations” Notice to all employees, add to new hire onboarding documents and annually and to employees upon request
• Revise employee handbooks to include new protected reasons for leave
• Update leave request forms to include victim of violence-related court attendance and jury duty
• Train HR staff and managers on the expanded definitions and qualifying proceedings
• Ensure payroll systems properly code these leave types
• Review confidentiality procedures for handling sensitive victim-related information
• Communicate policy changes to all employees
• Ensure policies align with both paid sick leave and unpaid FEHA leave provisions

3. SB 590: Paid Family Leave [Effective July 1, 2028]

This law expands California’s Paid Family Leave (PFL) program to allow employees to take PFL benefits to care for a seriously ill “designated person.” A designated person is defined as “any care recipient related by blood or whose association with the individual is the equivalent of a family relationship.” This significantly broadens who qualifies beyond traditional family members.

Beginning July 1, 2028, employees will be eligible for paid benefits when caring for a designated person. PFL is funded through mandatory payroll deductions from employees via the State Disability Insurance (SDI). Workers must identify the designated person and attest under penalty of perjury that the relationship is either by blood or equivalent to a family relationship.

Compliance Recommendations:

• Note the delayed effective date (July 1, 2028) but begin planning now
• Review current PFL policies and procedures, and update prior to July 1, 2028
• Prepare to update employee communications about PFL eligibility
• Develop forms and processes for employees to designate their “designated person”
• Train HR staff on the expanded definition of covered relationships
• Update leave management systems to track designated person leave

WAGE AND HOUR LAWS

4.SB 648: Enhanced Tip Theft Enforcement

This law authorizes the California labor commissioner to enforce tip and gratuity claims. Before SB 648, the labor commissioner lacked explicit authority to issue citations or civil actions when employers misused or withheld gratuities. Under the new law, enforcement mechanisms mirror those for minimum wage violations.

Compliance Recommendations:

• Review all Tips and Gratuities policies and procedures to ensure no tips are being retained by management/supervisors or used to offset wages
• Verify that credit card processing fees are not being deducted from employee tips
• Train managers and supervisors on proper tip handling procedures
• Audit payroll practices related to tipped employees
• Document tip distribution methods and policies
• Ensure compliance with all existing tip and gratuity requirements (See Labor Code Section 351).
• Implement systems to track tip distributions accurately
• Be prepared for potential Labor Commissioner investigations
• [See below -Federal “OBBBA” on tips and gratuity deductions for certain industries]

4.  SB 642: Enhanced Pay Transparency and Equal Pay Requirements

This law revises California’s existing pay transparency law, Labor Code Section 432.5 which requires employer to share the pay scale for a position or job posting or on request by an applicant or employee. SB 642 revises the definition of “pay scale” to mean a good faith estimate of the salary or hourly wage range that the employer reasonably expects to pay for a position upon hire. Employers with 15 or more employees must include this pay scale in all job postings and provide it to third parties posting jobs on their behalf.

This amendment to Labor Code Sections 432.3 and 1197.5 expands the definition of “wages” and “wage rates” for purposes of this law, to include “all forms of pay, including, but not limited to, salary, overtime pay, bonuses, stock, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement of travel expenses, and benefits”.

The law also expands the Equal Pay Act by increasing the statute of limitations from two to three years, allowing recovery of lost wages for up to six years, and clarifying that wage discrimination based on race, ethnicity, or sex (defined more broadly) is prohibited. Employers must maintain job title and wage rate history records for each employee during employment and for three years after employment ends.

This bill would also prohibit an employer from paying employees at wage rates less than the rates paid to employees of another sex instead of the opposite sex, and would require a civil action to recover wages to be commenced no later than 3 years after the last date the cause of action occurs. The bill would provide that an employee is entitled to obtain relief for the entire period of time in which a violation of its provisions exists, but not to exceed 6 years.

Compliance Recommendations:

• Revise all job postings to include good faith pay scale estimates reflecting what you expect to pay upon hire, including expanded definition of “wages” and “wage rates”
• Update templates used by recruiters and third-party posting services
• Ensure pay ranges are realistic and reflect actual hiring practices, not theoretical maximums
• Review compensation structures for potential equal pay violations (particularly looking back 6 years)
• Implement robust recordkeeping systems for job titles and wage rate histories
• Retain wage records for at least three years post-employment
• Audit current pay practices for potential sex, race, or ethnicity-based disparities
• Document legitimate business justifications for any pay differentials
• Train hiring managers on complying with pay transparency requirements
• Update compensation philosophy to ensure equity across protected categories

5. SB 261: Additional Tools to Enhance Enforcement and Collection of Wage Judgments To Ensure Workers Who Are Victims of Wage Theft to Be Paid Timely

This law expands the authority of the Division of Labor Standards Enforcement in wage claim matters and requires the Labor Commissioner to post unsatisfied wage awards against employers on its website. The law establishes mandatory civil penalties for employers who fail to pay court judgments awarded for nonpayment of wages and mandates recovery of attorney fees.

Compliance Recommendations:

• Prioritize payment of any outstanding wage claims or judgments immediately
• Establish systems to ensure timely payment of all wages owed
• Review wage payment practices for compliance with Labor Code requirements
• Implement strong payroll controls and audit procedures
• Respond promptly to any wage claims from current or former employees
• Work with legal counsel immediately if served with wage claims
• Budget for potential public disclosure if judgments exist
• Understand reputational risks of being listed on Labor Commissioner website
• Consider settling disputed wage claims to avoid public listing

6. Minimum Wage Increase

California’s statewide minimum wage increases to $16.90 per hour on January 1, 2026, for all employers regardless of size. Increases in local minimum wages for certain counties and cities may be found here. Fast Food Minimum Wage FAQs. Health Care Worker Minimum Wage FAQs.

Compliance Recommendations:

• Adjust all hourly wages to meet or exceed $16.90 per hour by January 1, 2026
• Update salary levels for exempt employees (minimum salary = 2x minimum wage for full-time employment) = $70,304 annually
• Review piece-rate, commission, and other alternative compensation structures
• Update payroll systems before year-end
• Post updated minimum wage notices
• Post update applicable Wage Order
• Check local minimum wage ordinances which may be higher
• Communicate wage changes to affected employees in writing
• Budget for increased labor costs

7. Expense Reimbursement: 2026 IRS Mileage Rate

The IRS has released the 2026 standard mileage rates, effective January 1, 2026. The business rate increases to 72.5 cents per mile ($0.72.5 per mile). Employers are required, under Labor Code 2802, to reimburse employees for all necessary expenditures or losses incurred by the employee in the direct consequence of the discharge of their duties, or their obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying directions, believed them to be unlawful.

Compliance Recommendations:

1.  Update employee handbook policy on travel and expense reimbursements to reflect updated rate.
2. Ensure that your employee reimbursements are fair and comply with California Labor Code 2802 which mandates full compensation for necessary business expenses incurring while using personal vehicles for work duties or for company business.

MISCELLANEOUS LAWS

8. SB 513: Personnel Records- New Training Records Requirements

This law expands the definition of personnel records that employers must make available to current and former employees. In addition to performance reviews and grievance records, employers must now provide access to all education and training records. These records must include- name of employee, the training provider, dates of training, duration, core competencies covered, and any resulting certifications or qualifications obtained.

Compliance Recommendations:

• Audit current personnel file systems and training record keeping practices
• Implement comprehensive tracking for all employee education and training
• Ensure training records include all required details (provider, dates, duration, competencies, certifications)
• Establish protocols for employees to request and receive training records
• Update recordkeeping policies and procedures
• Train HR staff on expanded personnel records definition
• Develop systems to maintain training records throughout employment and potentially after
• Review third-party training provider contracts to ensure you receive necessary documentation
• Create standardized forms for documenting training completion
• If you receive a request for personnel or payroll records from a current or former employee, contact experienced California employment counsel for advice and counsel and timely submittal of appropriate records.

9. SB 303: Protection for Workplace Bias Training

The stated purpose of this law is to encourage employers to conduct bias mitigation training and to affirm that conducting such training does not, by itself, constitute unlawful discrimination.

SB 303 states that an employee’s assessment, testing, admission, or acknowledgment of their own personal bias, when made in good faith and solicited or required as part of a bias mitigation training, does not, by itself, constitute unlawful discrimination.

“Bias mitigation training” means bias mitigation or bias elimination training, education, and activities provided by an employer for the purpose of educating employees on understanding, recognizing, or acknowledging the influence of conscious and unconscious thought processes and their associated impacts. Bias mitigation training shall include implementing specific strategies to mitigate the impact of employees’ personal biases. “Specific strategies” includes, but is not limited to, assessing or testing for personal bias, analyzing bias assessments or tests, conducting bias training, conducting workshops, using toolkits, and tracking bias mitigation and elimination.

This law amends the California Fair Employment and Housing Act (FEHA), which requires employers to prevent workplace discrimination, including providing specified harassment prevention training.

10. AB 692: Prohibition on “Stay or Pay” Employment Contract Terms

AB 692 makes it unlawful, with limited exceptions, for California employers to require employees to repay debts or fees to the employer, training provider, or debt collector when employment ends.

The law prohibits contract terms that impose repayment obligations tied to job termination, except in specific cases such as government loan forgiveness programs, tuition for transferable credentials, approved apprenticeships, or certain discretionary bonuses at the onset of employment. These exceptions must meet strict conditions, such as notice separate from the employment contract and prorated repayment.

Compliance Recommendations:

• Immediately audit all employment contracts, offer letters, signing bonuses, and training agreements
• Remove or revise any provisions requiring repayment of training costs, relocation expenses, or other fees upon termination
• Ensure any permissible repayment agreements (like tuition for transferable credentials) are in separate contracts from employment agreements and meet all statutory requirements
• Review hiring bonus and retention bonus structures to ensure compliance with exceptions
• Update onboarding materials and new hire paperwork
• Train HR and legal teams on compliant contract structures
• Document business justifications for any exception-based contracts
• Consult with employment counsel to ensure proper structuring of any legitimate repayment agreements

11. Fair Labor and Employment Act (FEHA) Final Regulations Regarding Automated-Decision System. CCR2 §11008 et al. Effective October 1, 2025

FEHA updated its regulations on the use of artificial intelligence (AI) and automated decision systems (ADS) in hiring and employment decisions. Employer must ensure that their use of ADS does not discriminate against protected characteristics under FEHA. These regulations also require employers to keep records of ADS-related activities for at least four years, including data used to run ADS tools, outputs generated, and results of any testing or evaluations. Bias testing and similar proactive measures can be evidence in discrimination cases when ADS are used in connection with employment decisions.

Compliance Recommendations:

• Take inventory of all AI or algorithmic tools you currently use in connection with employment decisions such as hiring, firing, training or promotion.
• In collaboration with employment counsel implement and document bias testing for each tool, including under attorney-client privilege, and be prepared to show how you addressed any issues found during testing.
• Review your vendor contracts and add obligations relating to testing, transparency and compliance.

Update your data retention scheduler to ensure ADS-related data is preserved for at least four years.

Federal- Trump’s OBBBA (Temporary Tax Deductions)

OBBBA Section 70202- No tax on FLSA Overtime

• Effective 2025 through 2028, individuals may deduct the portion of “qualified overtime” pay that exceeds their regular rate of pay (for example, the “half” portion of “time-and-a-half”).
• Overtime must be reported on Form W-2, Form 1099, another statement furnished to the individual, or directly by the individual.
• Maximum annual deduction is $12,500 ($25,000 for joint filers).
• Phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

The term ‘qualified overtime compensation’ means overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed. “(2) Exclusions. Such term shall not include any qualified tip (as defined in section 224(d)).”

No deduction shall be allowed unless the taxpayer includes on the return of tax for the taxable year such individual’s social security number. The OBBBA overtime deduction applies ONLY to FLSA Section 7 overtime, which requires: 1) Overtime for hours worked over 40 in a workweek; 2) At 1.5 x regular rate. California overtime (daily, 7th day, over 10 hours, etc.) does NOT qualify for the Federal OBBRA deduction. Additionally, the taxpayer may claim itemized or non-itemized deductions.

Determining FLSA Coverage

Most importantly, the worker must be covered by FLSA Enterprise method (which requires employer revenue of $500,000+ in annual gross revenue) or Individual method (if worker is regularly “engaged in interstate commerce or in the production of goods for interstate commerce).

The Department of Labor broadly interprets interstate commerce. These include:
Communication-Based Interstate Commerce:
✓ Make or receive telephone calls to/from other states✓ Send or receive mail (including packages) across state line
✓ Use email or internet communications with out-of-state parties✓ Use cloud-based software or applications (servers located out of state)

Transaction-Based Interstate Commerce:
✓ Process credit card payments (cards issued by out-of-state banks)✓ Accept payments from customers who are from out of state✓ Order supplies from out-of-state vendors✓ Handle records of interstate transactions

Physical Interstate Activity:
✓ Handle, use, or work with goods or materials that came from out of state✓ Provide services to customers who travel from out of state

Regulations will be forthcoming, with relief and guidance from IRS as follows:

Notice 2025-62– Notice of Relief from Certain Penalties

Notice 2025-69 Notice 2025-69 Guidance for Individual Taxpayers who received Qualified Tips or Qualified Overtime Compensation in 2025.pdf

Compliance Recommendations:

• Inventory your actual business practices to determine if workers are subject to FLSA under either enterprise test or individual test. If so, they are eligible for this tax deduction.
• Consult with California employment lawyers for definitive guidance
• If covered, implement systems to track FLSA overtime separately from California-only overtime.
• Communicate with employees about potential eligibility for OBBBA deduction (but recommend they consult with their own tax professionals)
• Work with payroll provider or CPA to set up tracking and recordkeeping systems and maintenance, including dual tracking for FLSA qualifying overtime from California-only OT in payroll systems.

2. OBBBA Section 70201- No tax on Qualified Tips

Under the One Big Beautiful Bill Act (OBBBA), effective for tax years 2025 through 2028, eligible employees may claim a federal income tax deduction for qualified tips. For federal tax purposes, “qualified tips” are:

• Tips paid in cash, by credit card, or received through a tip-sharing arrangement
• Voluntarily paid by the customer or client
• Received by an individual in a qualifying occupation that customarily and regularly received tips on or before December 31, 2024. See Proposed Regulations “Occupations That Customarily and Regularly Received Tips/Definition of Qualified Tips.
• Reported on Form W-2, Form 1099, or Form 4137
• Phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

Qualified tips do NOT include:

• Mandatory service charges
• Automatic gratuities that cannot be declined
• Tips received for illegal activity, prostitution services, or pornographic activity
• Tips received by employees working in certain SSTBs (Specified Service Trade or Business) under Internal Revenue Code Section 199A. SSTBs refer to businesses that primarily provide services rather than products, and includes fields such as health, law, accounting and actuarial, consulting, performing arts. It’s important to note that even if your employee receives tips and is included in the IRS Proposed Regs, if your business is an SSTB, your workers would not be eligible to take a tip credit.

Compliance Recommendations:

1. Contact your CPA and tax attorney to determine if your company is a SSTB and whether or not your employees may be eligible to receive this tax deduction.
2. Communicate with employees about potential eligibility for OBBBA overtime deduction (but recommend they consult with their own tax professionals)
3. Update reporting and payroll systems to track qualified tips. Note, state and local taxes may continue to tax all tips and overtime earnings in full.
4. Monitor future IRS updates and Proposed Regulations for revised reporting forms for 2026.
5. Review tip pooling and classification to ensure compliance with federal and state laws. Avoid including roles (supervisors/managers) that do not qualify for tipping under state and federal standards.
6. For 2025, employers may use reasonable methods to estimate qualified tips (Notice 2025-69.

With Increased PAGA Reform Penalties, Coming into Compliance Is More Important Than Ever.

It’s important to realize that legal compliance is simply a cost of doing business. Litigation is expensive and time consuming. We understand that laws are complicated and often difficult to understand, even for lawyers. Hopefully, this listing of Top Eleven 2025 California Employment Laws for small business private employers will make it a little easier to bring your Employee Handbooks and employee processes into compliance.

Save this blog as a favorite so you can come back to it when issues or questions come up and you want to refer to direct source materials. You might also find our Self-Help Legal Resources useful which includes links to employment agencies.

Need More Help?

Feel free to contact the authors if you have any further questions about these new 2026 California Employment Laws, including applicability to your industry and how to implement them.

Authors: Chuck Farrar, aka The Frog Knows Employment Lawyer and Janice Knight, Senior HR Consultant (Knight Line Consulting)

Contact Chuck (for legal advice) or Janice (for HR compliance prevention strategies) with questions or to schedule an appointment.

Disclaimer

The Law Office of Chuck Farrar provides this Blog/Website post for educational purposes only, as well as to give the public general information and a general understanding of employment laws for small business private employers in California. It is not intended to and does not provide specific legal advice. By using this Blog/Website you understand that there is no attorney client relationship between you and The Law Office of Chuck Farrar. Do not use this Blog/Website as a substitute for competent legal advice from a licensed professional attorney in your state.