Employment Law

Hiring Your First Employee in California: A Compliance Checklist

By Ingrid Rainey · September 23, 2025 · 7 min read

Going from founder to employer changes your legal profile immediately. Payroll registration, insurance, notices, and classification decisions all attach on the first day of work, and several of them carry penalties that accrue quietly until an audit or a claim surfaces them.

Key takeaways

Workers' compensation coverage and payroll registration attach on day one.
Classification — exempt vs. non-exempt, employee vs. contractor — is the decision most likely to create liability.
San Diego city minimum wage and sick leave rules can exceed the state floor.

Before the first day

Obtain a federal EIN and register with the California Employment Development Department for payroll tax accounts.
Bind workers' compensation insurance — coverage is mandatory from the first employee, and going without it is a criminal offense in California.
Decide exempt or non-exempt classification against both the duties test and the state salary threshold, which is tied to state minimum wage.
Prepare an offer letter, at-will acknowledgment, confidentiality and invention assignment agreement, and, if applicable, an arbitration agreement drafted to current California standards.
Set up a compliant timekeeping system for non-exempt staff, including meal and rest period tracking.

Notices and forms on day one

Labor Code 2810.5 wage notice for non-exempt employees, stating pay rate, pay day, and employer details.
Form I-9 within three business days, plus state and federal W-4s.
New hire reporting to the state within 20 days.
Required pamphlets and notices on workers' compensation rights, paid sick leave, disability insurance, paid family leave, sexual harassment, and workplace rights.
Workplace posters, including current minimum wage and the applicable Wage Order.

Have a question about your situation?

Rainey Law P.C. advises San Diego businesses and employees on matters like this one.

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Setting the foundation you will want later

Even a one-employee company benefits from a short handbook covering sick leave, expense reimbursement, timekeeping, harassment reporting, and leave policies. It sets expectations, and it becomes the record that a policy existed if a dispute arises.

Local rules matter too: the City of San Diego's earned sick leave and minimum wage ordinance applies to employees working two or more hours in a week within city limits, and it can exceed the state floor.

The first 90 days after the hire

Confirm the first pay stub shows all nine items California requires, including the exact registered entity name.
Verify sick leave is accruing and displaying correctly from the start of employment.
Document a written 90-day check-in — it establishes a performance record before problems develop.
Reimburse business expenses, including a reasonable share of personal phone and internet where used for work.
Revisit classification if the role's duties have shifted away from what justified an exempt designation.

Frequently asked questions

Can I hire a contractor instead to keep it simple?

Only if the role genuinely satisfies the ABC test. Misclassifying a first hire is a common and costly shortcut, exposing the company to back wages, taxes, and penalties.

Does a part-time hire trigger all of this?

Nearly all of it. Workers' compensation, wage notices, sick leave, and payroll registration apply regardless of schedule.

When do harassment training obligations start?

At five employees, counting part-time workers and contractors, with supervisors requiring two hours of training.

What is the current exempt salary threshold?

California ties the exempt salary minimum to twice the state minimum wage for full-time work, and it rises with each minimum wage increase — verify the current figure before each January.

Do we need an employee handbook for one employee?

It is not required, but a short written policy set covering sick leave, timekeeping, reimbursement, and harassment reporting is inexpensive and becomes important evidence if a claim arises.

This article is general information, not legal advice, and does not create an attorney-client relationship. Outcomes depend on the facts of each matter.

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