Labor requirements for business

There are different rules for employees than independent contractors. Differences include payroll taxes, minimum wage, overtime, and more. 

If you aren't sure how to classify a potential hire as an employee or independent contractor, you can use this "test" to help.

During the hiring process, it is unlawful to ask about a job applicant’s age, sexual orientation, marital status, religious affiliation or race. Additionally, questions related to a physical, emotional or mental disability can only be asked if an applicant will need special accommodations for performing a specific job. 

The US Department of Labor and the Equal Employment Opportunity Commission explains these rules in more detail.

Businesses located or doing business in the City, that have 5 or more employees (regardless of the employees’ locations), cannot discriminate against potential hires who may have a criminal record. Learn more about the Fair Chance Ordinance from the SF Office of Labor Standards Enforcement.

Federal law requires employers to verify an employee’s eligibility to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification, to confirm the employee’s citizenship or eligibility to work in the U.S. To verify citizenship, employers can only request the documentation specified on the I-9 form.

Employers must keep each employees I-9 on file for three years after the date of hire or one year after the date of the employee’s termination, whichever is later.

NOTE: Employers can use information taken from the Form I-9 to electronically verify the employment eligibility of newly hired employees by registering with E-Verify. 

The IRS requires that you keep records of employment taxes for at least four years. Keeping good records can also help you monitor the progress of your business, prepare financial statements, identify the sources of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.

Federal Income Tax Withholding

Every employee must provide their employer with a signed W-4 withholding exemption form so that you can withhold the correct amount from their paychecks. On the W-4 form, employees tell you how many allowances they are claiming for tax purposes. You should ask employees to fill out a new W-4 form each year if they want to change their allowances. For more specific information, read the IRS Employer’s Tax Guide on irs.gov.

If your business has established employee benefit programs like health insurance or a 401(k) plan, you’ll need a sign-up procedure so employees can enroll, name their dependents, and select options.

Minimum wage

The San Francisco minimum wage is higher than most cities to reflect the cost of living in the city. The current minimum wage is updated every year.

Paid sick leave

All employers must provide paid sick leave to each employee (including temporary and part-time employees) who performs work in San Francisco. Learn more about the Paid Sick Leave Ordinance from the SF Office of Labor Standards Enforcement and the Healthy Workplace Healthy Family Act from the CA Department of Industrial Regulations.  

Flexible work arrangements

Employees with families in San Francisco have the right to request a flexible work arrangement (though employers also have the right to refuse for legitimate business reasons). Learn more about the Family Friendly Workplace Ordinance from the SF Office of Labor Standards Enforcement.

Healthcare security spending

In San Francisco, you must pay toward health care coverage for all your employees. The size of this payment depends on the size of your business, where a small business has 19 employees or less, a medium business has 20-99 employees, and a large business has over one hundred employees. Learn more about the Health Care Security Ordinance from the SF Office of Labor Standards Enforcement.

Commuter benefits

Businesses located or doing business in the City that have 20 or more employees must provide commuter benefits to encourage their employees to take public transit, bike, or rideshare to work. Learn more about the Commuter Benefits Ordinance from the SF Department of the Environment.

Retail employees

All Formula Retail Establishments with at least 20 retail stores, must follow the San Francisco Retail Worker Bill of Rights. These employers must provide schedules in advance, give prior notice for schedule changes, and offer predictability pay among other requirements. Sign up for updates and reminders about Formula Retail Labor Protections through the SF Office of Labor Standards and Enforcement.

In California, if you have one employee or more, you must have workers’ compensation insurance to protect workers who might suffer on-the-job injuries. If your employees get hurt or sick because of work, you are required to pay for workers' compensation benefits. Workers’ comp insurance provides six basic benefits: medical care, temporary disability benefits, permanent disability benefits, supplemental job displacement benefits or vocational rehabilitation and death benefits. 

You may obtain workers’ compensation insurance in California in the following ways:

• Through a broker
• Directly with an insurance carrier 

If you currently do not have a broker or insurance carrier and would like to search for a list of carriers, you can learn more from the CA Department of Industrial Relations. 

NOTE: If you are a roofer and don’t have any employees, you are still required to carry workers’ comp insurance. 

Once you bring on employees, you must pay California unemployment insurance taxes. First, register with the CA Department of Industrial Relations. Later, at tax time, your payments will go to the state’s unemployment compensation fund, which provides short-term relief to workers who lose their jobs. 

Unemployment Insurance (UI) is paid by every employer in California. Tax-rated employers pay a percentage on the first $7,000 in wages paid to each employee in a calendar year. The UI rate schedule and amount of taxable wages are determined annually. 

Employers are required by law to withhold and remit State Disability Insurance (SDI) contributions and to inform their employees of SDI benefits. To inform employees, you must provide them with the publications listed below. You can find these publications through the CA Employment Development Department. 

• Notice to Employees: Unemployment Insurance/Disability Insurance Benefits (DE 1857A) – Advises employees of their right to claim Unemployment Insurance (UI), DI, and PFL benefits.
• State Disability Insurance Provisions (DE 2515) – For new hires and again when the employee notifies the employer they need to take time off from work due to their non-industrial medical condition.
• Paid Family Leave Benefits (DE 2511) – For new hires and again when the employee notifies the employer they need to take time off from work to care for a seriously ill family member or to bond with a new child.

Almost every employer must comply with the requirements of the Occupational Safety and Health Act (OSHA) by, among other things, providing a workplace free of hazards, training employees to do their jobs safely, notifying government administrators about serious workplace accidents, and keeping detailed safety records.

Employers are required to display certain posters in the workplace that inform employees of both their rights and employer responsibilities under labor laws. California employers must post all state and federal required posters, but San Francisco has some additional notices that must be displayed. 

City-Required Posters

• Minimum Wage Ordinance Official Poster. Find poster and read more. 
• Fair Chance Ordinance Notice. Find poster and read more.
• Paid Sick Leave Ordinance Official Poster. Find poster and read more.
• Health Care Security Ordinance (HCSO) Notice. Find poster and read more. 
• Family Friendly Workplace Ordinance Notice. Find poster and read more.

State and Federal Required Posters

The CA Department of Industrial Relations maintains an updated list of the following posters, which are required for all employers. The list also includes notices that only apply to specific business types and sizes.

• Payday notice
• Safety and health protection on the job
• Emergency phone numbers
• Paid sick leave
• Notice to employees – injuries caused by work
• Notice to employees – workers’ compensation carrier and coverage
• Whistleblower protections
• No smoking signage
• Discrimination and harassment in employment
• Notice to employees – unemployment insurance benefits
• Notice to employees – time off to vote
• Equal employment opportunity
• Notice to employees – Employee Polygraph Protection Act

Posters required by the US Department of Labor (DOL) and other federal agencies can also be found using the DOL FirstStep Poster Advisor search tool.

Every year, employers must report the amount of wages paid and taxes withheld for each employee on a federal wage and tax statement. This report is filed using Form W-2, wage and tax statement which employers must complete for each employee. 

By the last day of February, employers must send Copy A of their employees W-2 forms to the Social Security Administration to report wages and taxes of your employees for the previous calendar year. In addition, employers should send copies of W-2 forms to their employees by January 31 of the year following the reporting period. Visit ssa.gov/employer for more information.

Hire your first employee

The US Small Business Administration (SBA) explains how to start the hiring process and ensure you are compliant with key federal and state regulations.

Nolo

Nolo, formerly known as Nolo Press, is a Bay Area publisher that produces do-it-yourself legal books and software that reduce the need for people to hire lawyers for simple legal matters.

Hiring Your First Employee: 13 Things You Must Do

A to-do list for new employers produced by Nolo, a Berkeley-based legal advice publisher.

Recruitment assistance to find local talent

The Office of Economic and Workforce Development (OEWD) knows that finding good talent in a market like San Francisco can be a challenge—but the Employer Engagement Team is here to help. Services range from presenting qualified and screened candidates that match your job requirements to assisting you in scheduling interviews in our recruitment facilities. OEWD can also help connect you to local hiring events. 

Tax credits and incentives

Certain employers can be eligible for thousands of dollars in Local, State, and Federal tax credits and incentives based on hiring and other business expenses. 

CityBuild Employment Networking Services

The Office of Workforce and Economic Development's CityBuild Employment Networking Services connect contractors with qualified San Francisco resident trades workers. CityBuild maintains a database of over 4,000 local workers and can assist contractors in meeting workforce hiring requirements.

Layoff response assistance

The Office of Economic and Workforce Development can provide services through the Rapid Response Program that will assist you in easing the transition of your workforce when a downsizing event cannot be averted. Staff will conduct on-site or virtual orientations and inform your employees about resources and services that can assist them with applying for unemployment, access to career coaching, and healthcare options.