Last reviewed: October 12, 2026. This article replaces an earlier 2025 overview and was rewritten in October 2026 using official sources, which are linked throughout.
Short answer: For most California businesses, the rules that changed or took effect in 2025 and 2026 fall into five areas: wages and pay transparency; worker classification and freelancer contracts; employment compliance (PAGA, sick leave and workplace violence plans); AI in hiring and consumer privacy; and entity, tax and federal reporting obligations. The checklist below summarizes each one in plain language, with a link to the official source.
1. Wages and Pay Transparency
- Minimum wage. The statewide minimum wage was $16.50 per hour in 2025 and rose to $16.90 per hour on January 1, 2026 (DIR notice). Some cities and some industries set higher minimums, so check the rate that applies where your employees work.
- Exempt salary. Most exempt (salaried) employees must earn at least twice the state minimum wage for full-time work, which is $70,304 per year in 2026. An employee paid less generally must receive overtime.
- Pay scales in job postings. Employers with 15 or more employees must include a pay scale in job postings. SB 642 (2025) clarifies that the pay scale is a good-faith estimate of the wage range the employer reasonably expects to pay on hire (Lab. Code § 432.3).
- “Stay-or-pay” clauses. For contracts entered into on or after January 1, 2026, AB 692 makes it unlawful, with limited exceptions, to require a worker to repay the employer (for example, training costs) if the worker leaves.
2. Worker Classification and Freelancer Contracts
- The ABC test. Under Labor Code § 2775, a worker is presumed to be an employee unless the hiring business shows the worker (A) is free from its control, (B) performs work outside the usual course of its business, and (C) is customarily engaged in an independently established business of the same kind. Some occupations and business-to-business arrangements are exempt and are judged under the older Borello test instead.
- App-based drivers. Proposition 22 allows app-based rideshare and delivery drivers to be treated as independent contractors if the platform meets the measure’s requirements. The California Supreme Court upheld Proposition 22 in Castellanos v. State of California on July 25, 2024 (opinion).
- Written freelancer contracts. For contracts entered into or renewed on or after January 1, 2025, the Freelance Worker Protection Act (SB 988; Bus. & Prof. Code §§ 18100–18107) requires a written contract when a business hires a one-person freelance business for professional services worth $250 or more (alone or combined over 120 days). The business must give the freelancer a signed copy, keep it for at least four years, and pay on time, or within 30 days after the work is completed if the contract is silent.
3. Employment Compliance: PAGA, Sick Leave and Workplace Violence Plans
- PAGA after the 2024 reforms. Penalties recovered under the Private Attorneys General Act are now split 65% to the Labor and Workforce Development Agency and 35% to aggrieved employees. Penalties can be capped at 15% if the employer took all reasonable steps to comply before receiving a PAGA notice, or at 30% if it does so within 60 days after the notice (Lab. Code § 2699). Regular payroll audits and written policies help support these caps.
- Paid sick leave. Employers must allow employees to use at least 40 hours or five days of paid sick leave per year (Lab. Code § 246).
- Workplace violence prevention. Since July 1, 2024, most California employers must have a written workplace violence prevention plan, train employees and keep a violent-incident log (Lab. Code § 6401.9).
- Pay data reports. Private employers with 100 or more employees file annual pay data reports with the Civil Rights Department. SB 464 (2025) requires demographic data to be stored separately from personnel files and expands the job categories from 10 to 23 beginning January 1, 2027.
4. AI in Hiring and Consumer Privacy
- Automated decision systems in employment. Civil Rights Council regulations that took effect October 1, 2025 confirm that using an automated decision system (for example, AI résumé screening) can violate California anti-discrimination law if it harms applicants or employees based on protected characteristics. Employers must keep employment records, including automated-decision data, for at least four years (Civil Rights Department).
- CCPA thresholds and penalties. The California Consumer Privacy Act applies to for-profit businesses that meet a threshold such as annual gross revenue above $26,625,000 (as adjusted in 2025). Administrative fines are up to $2,663 per violation, or $7,988 per intentional violation or violation involving consumers under 16, and statutory damages in data-breach lawsuits range from $107 to $799 per consumer per incident. These amounts are adjusted in odd-numbered years (CPPA).
5. Entity Filings, Taxes and Federal Reporting
- Annual tax. California LLCs and corporations generally pay at least $800 per year. For taxable years beginning in 2027 through 2029, a new LLC pays $400 instead of $800 for its first taxable year (Rev. & Tax. Code § 17941).
- Statements of Information. LLCs file a Statement of Information with the Secretary of State every two years and corporations file one every year. Missing filings can lead to penalties and suspension.
- Beneficial ownership (BOI) reports. Companies created in the United States no longer have to file BOI reports with FinCEN under the Corporate Transparency Act; FinCEN’s final rule took effect August 14, 2026. Foreign companies registered to do business in a U.S. state should check FinCEN’s current guidance (FinCEN).
Practical Checklist
- Confirm pay rates against the 2026 state minimum and any local minimum wage, and check exempt salaries against $70,304.
- Update job-posting templates to show a good-faith pay range.
- Review training-repayment and retention-bonus terms in agreements signed on or after January 1, 2026.
- Put every freelancer engagement of $250 or more in a signed written contract and keep it for four years.
- Audit payroll periodically and keep written policies current, which also helps limit PAGA exposure.
- If you use AI tools in hiring, ask vendors how the tools are tested for bias and keep records for four years.
- Calendar your Statement of Information and annual tax deadlines.
Frequently Asked Questions
What is the California minimum wage in 2026?
$16.90 per hour statewide, effective January 1, 2026. Some cities and industries require more.
Do California LLCs still need to file a BOI report?
No, if the company was created in the United States. FinCEN’s final rule exempting domestic companies took effect August 14, 2026.
Does a freelancer contract have to be in writing in California?
Yes, for contracts entered into or renewed on or after January 1, 2025, when a business hires a one-person freelance business for professional services worth $250 or more, alone or combined over 120 days.
This article is a general summary. Each rule has exceptions and details that depend on your business, location and workforce. Book a free 15-minute call to discuss how they apply to you.