Key California EDD Legislative Updates

California’s regulatory environment is notoriously dynamic, particularly concerning employment and payroll tax laws. For businesses operating in the Golden State, staying abreast of these continuous legislative updates from the Employment Development Department (EDD) and the broader state government is not merely about compliance; it is about strategic planning, risk management, and maintaining financial health. Ignoring these changes can lead to significant penalties, increased operational costs, and legal challenges. This overview highlights some of key EDD related legislative updates and potential implications for California businesses.

California’s Dynamic Regulatory Environment

The EDD is at the forefront of administering various payroll taxes and benefit programs, including Unemployment Insurance (UI), State Disability Insurance (SDI), Paid Family Leave (PFL), and Personal Income Tax (PIT) withholding. Changes to these programs or their underlying statutes directly impact how businesses manage their payroll, classify workers, and budget for employment costs. Driven by shifts in the economy, social policies, or the need to shore up state benefit funds, California’s legislature frequently introduces bills that modify these programs, often

Recent Significant Legislative Changes and Trends

Businesses must remain vigilant about recent and upcoming changes, as they can significantly alter compliance requirements and financial obligations.

Enhanced Paid Family Leave (PFL) and State Disability Insurance (SDI) Benefits

A significant development impacting employee benefits and, indirectly, employer considerations, is the ongoing enhancement of California’s PFL and SDI programs. For example, effective January 1, 2025, Senate Bill (SB) 951 eliminates the existing wage replacement rate caps for PFL and SDI benefits. This means that for claims beginning on or after this date, benefits will increase for lower-wage workers, potentially reaching up to 90% of their average weekly wages. While employees pay for SDI or PFL through  payroll deductions, these increased benefits can influence workforce planning, employee leave management, and potentially impact the frequency and duration of leave requests. Businesses should be aware their employees will have greater financial support when utilizing these benefits.

Ongoing Scrutiny of Independent Contractors (Post-AB 5/Dynamex)

The landscape for independent contractor classification remains a high-stakes area. Following the landmark California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court and the subsequent enactment of Assembly Bill (AB) 5, California adopted the stringent “ABC Test” for determining worker classification, with limited statutory exceptions. Although AB 5 has seen some amendments and clarifications through later legislation such as AB 2257, the fundamental presumption is a worker is an employee unless the hiring entity can satisfy all three prongs of the ABC Test.

The EDD continues to prioritize audits related to worker misclassification. Businesses that improperly classify employees as independent contractors face substantial penalties, including back payroll taxes, interest, and severe fines. It is crucial for businesses to continually review their independent contractor relationships against the current legal standards, as enforcement remains a significant focus for the EDD.

Electronic Filing and Payment Mandates

The trend towards mandatory electronic filing and payment continues. The EDD increasingly requires businesses to file tax returns and make payroll tax deposits electronically. This mandate simplifies processes for the EDD but requires businesses to ensure their payroll systems and accounting practices are capable of digital compliance. Non-compliance with e-file/e-pay mandates can result in penalties. Businesses should confirm they are meeting all electronic submission requirements to avoid unnecessary fines.

Potential Future Legislative Trends

California businesses should anticipate continued legislative activity concerning:

• Expansion of Benefit Eligibility: There may be further legislative efforts to expand eligibility for existing EDD administered benefits or to introduce new types of mandated leave or insurance programs.
• Increased Enforcement: Given California’s ongoing need for revenue and the desire to protect worker benefits, the EDD is likely to continue its robust enforcement efforts, particularly in the areas of worker misclassification and late or unreported wages.
• Data Reporting Enhancements: Businesses may see increased requirements for detailed data reporting to the EDD to facilitate better compliance monitoring and benefit administration.

Practical Implications for Businesses

These legislative shifts are not abstract legal concepts; they have tangible impacts on daily business operations and financial planning.

Payroll Adjustments and Withholding

Businesses must ensure their payroll systems are updated to reflect any changes in UI taxable wage limits, SDI/PFL contribution rates, even if employee funded, or other relevant payroll tax calculations. While employees typically fund SDI and PFL, the employer’s payroll system must accurately deduct and remit these contributions.

Reviewing Employee Handbooks and Policies

Existing employee handbooks and internal policies should be reviewed and updated regularly to align with new EDD-related laws, especially regarding leave entitlements around PFL, SDI and worker classification guidelines. Clear policies help both employers and employees understand their rights and obligations.

Training for HR and Management

Those responsible for human resources and managerial oversight must be trained on the latest EDD regulations. This ensures consistent application of policies, accurate record-keeping, and appropriate responses to employee inquiries or claims. Misunderstanding new laws can lead to inadvertent non-compliance.

Budgeting for Payroll Tax Changes

Businesses should factor potential changes in payroll tax obligations, including potential increases in UI rates due to broader economic factors or claim history or other payroll-related costs, into their financial forecasting and budgeting. This proactive approach helps avoid unexpected financial burdens.

The Importance of Proactive Legal Counsel

Navigating California’s complex and ever-changing EDD and employment laws requires specialized legal expertise. A seasoned employment or tax attorney can help businesses:

• Interpret the nuances of new laws and regulations and assess their specific impact.
• Proactively identify potential areas of non-compliance and develop strategies to mitigate risk.
• Assist in structuring worker relationships to meet classification standards.
• Represent the business in EDD audits, appeals, or other administrative proceedings.
• Ensure that internal policies and practices align with the latest legal requirements.

Staying informed and seeking timely legal guidance are critical steps for California businesses to ensure compliance, manage costs, and navigate the evolving regulatory landscape effectively. Proactive legal counsel provides a competitive edge and helps businesses adapt to the continuous changes in California’s employment and tax laws.

California EDD Legislative Updates

Navigating the complexities of California’s ever-changing EDD legislative landscape requires specialized expertise. The RJS LAW team has years of combined experience helping businesses seeking to understand the implications of new laws and ensure proactive compliance. For a no-cost consultation, please contact RJS LAW on the web or by calling 619-595-1655.”