An experienced California employers' attorney summarizes the state and federal changes employers need to know before the new year.

Employers are strongly advised to audit employee classifications (i.e., exempt vs. non-exempt). The mere failure to pay at least the threshold salary amount can nullify some overtime exemptions.”
— Steven M. Chanley

LAKE FOREST - CA, CA, UNITED STATES, December 29, 2025 /EINPresswire.com/ -- On January 1, 2026, a broad package of new employment laws takes effect that will impact hiring practices, compensation, workplace notices, and layoff planning for California employers. Below is a summary of the most significant changes at the state level, as well as some notable federal developments that will impact payroll, taxation, and HR compliance nationwide.

Wage & Hour: Statewide and Industry Minimums

California’s minimum wage rises to $16.90 per hour for all employers, regardless of size. This Consumer Price Index-based adjustment also increases the exempt salary threshold (white collar exemptions) to $70,304 annually. Employers are strongly advised to audit employee classifications (i.e., exempt vs. non-exempt) and to either adjust salaries, or reclassify any exempt role below the new threshold, accordingly. The mere failure to pay at least the threshold salary amount can nullify some overtime exemptions.

Certain sectors continue to have higher minimums. For example, covered fast food chains remain at $20/hour under existing law, while health care facilities follow a phased schedule with rates between $18.63–$24 depending on facility type. Several types of facilities have additional increases slated mid 2026. Employers are encouraged to confirm the applicability of the changes to their industry before setting rates.

Remember that the California minimum wage is intended to be a “floor” and that cities and counties, such as San Francisco and Los Angeles, have the authority to have their own higher minimum wages. Employers should confirm any local changes in minimum wage rates and update posting and payroll for any location specific rates.

Layoffs & CalWARN Notices: SB 617

California now increases the content required in CalWARN notices for mass layoffs, closures, and relocations. Notices must confirm coordination with local workforce development boards, include rapid response services, and provide information about CalFresh food assistance. Employers should update templates and workflows to avoid technical violations that can trigger statutory penalties.

Pay Transparency & Equal Pay: SB 642

Starting January 1, 2026, employers with 15 or more employees must post a good faith pay scale that reflects what they actually expect to pay a new hire. Broad, speculative classifications are now insufficient. California also expands the Equal Pay Act. The term “wages” now includes equity awards, bonuses, allowances, reimbursements, and benefits. The statute of limitations for unequal pay extends to three years, with a recovery of up to six years where a disparity existed. Employers can expect more robust governmental audits and more stringent recordkeeping obligations.

“Stay or Pay” and Training Repayment Agreements: AB 692

Effective January 1, 2026, most training repayment and “stay or pay” provisions in employment contracts are banned. The new law permits certain narrow exceptions, such as some transferable credentials or compliant, separately documented signing bonuses. However, noncompliant agreements entered after January 1, 2026, are void and treated akin to unlawful restraints of trade. Such unlawful business practices carry the potential for statutory damages and attorneys’ fees to an affected employee. Employers should carefully review their offer letters, relocation bonuses, and tuition repayment policies to ensure compliance with the new law.

Tips & Gratuities Enforcement: SB 648, AB 578

The California Labor Commissioner now has explicit authority to quickly investigate and remedy tip theft. Remedies for tip theft now include a per pay period civil penalties and make—whole relief. Hospitality and service industry employers should audit their tip pooling arrangements, the point-of-sale software settings, and tip payout policies.
Food delivery platforms now face stricter rules regarding tips disclosure and refunds. Employers using such platforms for corporate programs should ensure vendor compliance.

Required Notices: Workplace “Know Your Rights” Act (SB 294)

By February 1, 2026, employers must distribute a stand-alone annual notice to all employees covering workers’ compensation rights, immigration related protections, rights to organize and form labor unions, and constitutional rights during law enforcement interactions at work. The Labor Commissioner will publish a template for employers to use. Employers must also provide employees an opportunity to designate an emergency contact by March 30, 2026, and must notify that contact if an employee is arrested or detained at work. Employers should ensure that all required notices be provided in the language used for workplace communications.

Personnel Files, Pay Data, and Recordkeeping: SB 464

California tightens how payroll and employee data records are collected and kept. Employee or applicant demographic data collected for California Civil rights Department reporting must be stored separately from personnel files beginning January 1, 2026. Beginning in 2027, large employers will report information across 23 job categories (up from just 10). Employers should plan now for systems, procedures, and privacy controls that comply with the new recordkeeping laws.

Protected Leave: AB 406 (Victims’ Judicial Proceedings)

Employees may use paid sick leave and certain unpaid leave to attend judicial proceedings when they or a family member are victims of certain specified crimes. Employers should update their leave policies, increase manager training, and update their request/verification procedures relating to time off work.

Workplace Violence Prevention: SB 553

California’s general industry Workplace Violence Prevention Plan (WVPP) requirement has been in effect since July 2024. Cal/OSHA must propose a general industry standard by Dec. 31, 2025, and the Standards Board must adopt that general industry standard by no later than Dec. 31, 2026. Employers are advised to continue to maintain a written WVPP, mandate training annually, accurately log all incidents of workplace violence, and monitor all draft revisions published by the Standards Board.

Federal Changes Affecting California Employers

Federal tax relief on overtime and tips begins in 2026. Employees may deduct the “half” portion of FLSA overtime (hours over 40/week) up to $12,500 for individuals (and higher caps reported for joint filers). Tipped employees may deduct up to $25,000 in qualified tips annually. Employers should expect payroll code updates and employee questions during tax season. As always, employers should ensure that their wage statements accurately reflect overtime categories and also include all information required by California Labor Code section 226(a).

Steven M. Chanley
Employer Advocates Group LC
+1 9492770303
[email protected]

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