California Paid Family Leave Requirements for Employers

California Paid Family Leave requirements for employers are administrative, not financial: the program is funded entirely by employee payroll deductions, but employers must post and distribute specific notices, withhold State Disability Insurance (SDI) contributions accurately, respond to Employment Development Department (EDD) claim notices within two business days, coordinate PFL with job-protected leave laws, and keep the records to prove all of it. Miss any of these, and the EDD’s penalty structure starts at 15% and stacks.

Required Notices and Brochures

Keep the Notice to Employees (DE 1857A) posted where all workers can see it. That poster covers rights under Unemployment Insurance, Disability Insurance, and Paid Family Leave.¹

The Paid Family Leave brochure (DE 2511) goes to every new hire, and again whenever an employee requests time off to:²

Bond with a new child by birth, adoption, or foster placement.
Care for a seriously ill spouse, registered domestic partner, parent, child, grandparent, grandchild, sibling, or parent-in-law.
Support a family member deploying abroad with the U.S. armed forces.

Distribute the Disability Insurance Provisions brochure (DE 2515) to new hires and to employees requesting medical leave, since the same SDI fund covers both programs.² The EDD provides both brochures at no cost.

Payroll Withholding for SDI

Employers withhold SDI contributions from wages and remit them to the EDD. The 2026 rate is 1.3%, and since January 1, 2024, all wages are subject to withholding with no taxable wage ceiling.³ The deduction shows on pay stubs as “CASDI.”⁴ The legislature adjusts the rate annually, so payroll systems need a yearly review.

Employers do not contribute their own funds to PFL. The financial role is limited to collecting employee deductions and forwarding them to the state.⁵

Responding to a PFL Claim

Employees file PFL claims directly with the EDD on Form DE 2501F. The EDD, not the employer, approves or denies claims. Once a claim is filed, the EDD sends the employer a Notice of Paid Family Leave Claim Filed (DE 2503F), and the employer must complete and return it within two business days.⁶

That deadline is short. Assign one person in HR or payroll to watch for DE 2503F notices and respond with the requested wage and employment information immediately.

Employers cannot require employees to burn through accrued sick leave or PTO before receiving PFL benefits. That practice has been explicitly prohibited since January 1, 2025.⁷ An employee may voluntarily supplement PFL with accrued PTO if both sides agree.

What PFL Does Not Do

PFL provides wage replacement only. Up to eight weeks in a 12-month period, roughly 70% to 90% of prior wages, capped at $1,765 per week in 2026.⁴ There is no waiting period. PFL does not protect the employee’s job or guarantee reinstatement — that comes from CFRA and FMLA, which are separate obligations.

Coordinating PFL With CFRA and FMLA

This is where the biggest employer mistakes happen, because three overlapping schemes have different size thresholds and different rules.

Which Laws Apply

The California Family Rights Act (CFRA) applies to employers with five or more employees.⁸ The federal Family and Medical Leave Act (FMLA) applies to employers with 50 or more employees within a 75-mile radius.⁹ Both laws provide up to 12 weeks of job-protected leave per year for qualifying reasons, including bonding with a new child and caring for a seriously ill family member.¹⁰

An employer with five to 49 employees is covered by CFRA but not FMLA. At 50 or more, both usually apply, and the employer must follow whichever law is more generous to the employee on any given point. CFRA and FMLA also differ slightly on qualifying reasons and family-member definitions, so leave decisions need to be checked against both.

Running Leave Concurrently

When the reason for PFL also qualifies for CFRA or FMLA, run the periods concurrently. The PFL wage replacement covers part of the job-protected window. The employee may still take additional unpaid weeks under CFRA or FMLA after PFL benefits end, up to the 12-week protection cap.

Designate the leave in writing. Formally notify the employee that the absence is being counted as CFRA, FMLA, or both. Time off that isn’t designated as protected leave may not count against the employee’s annual allotment, which means an employee could later claim entitlement to additional weeks.

Health Coverage During Leave

Employers covered by FMLA must maintain the employee’s group health insurance on the same terms as if the employee had never left. Same plan, same employer contributions, same deductibles.¹¹ CFRA imposes a parallel requirement under state law. Dropping coverage during protected leave can trigger both regulatory penalties and a private lawsuit.

Federal Tax Treatment

PFL benefits are taxable federal income. IRS Revenue Ruling 2025-4 confirmed that state family leave payments count as gross income under Section 61 of the Internal Revenue Code. Those benefits are not wages for federal employment tax purposes, so they are not subject to Social Security, Medicare, or federal income tax withholding by the state.¹²

The state reports PFL payments to the IRS on Form 1099 when they total $600 or more in a tax year.¹² Employers generally do not include PFL benefits on the W-2, because the EDD pays them directly. One exception: if an employer voluntarily covers part of the employee’s SDI contribution (an “employer pick-up”), those amounts are wages for federal employment tax purposes and must be reported on the employee’s W-2.¹³

Penalties for Non-Compliance

The EDD’s penalties center on a 15% charge that applies across most employer failures, with fraud pushing higher. The common triggers:¹⁴

Late or underpaid contributions: 15% of the amount due.
Late quarterly reports more than 60 days overdue: an additional 15% on top of the late-payment penalty.
Failure to file returns: 15% of the assessed contributions, with no good-cause exception.
Negligent or intentionally deficient filings: another 15%, stacked on the failure-to-file penalty.
Fraud or intent to evade: 50% of the assessed contributions, stacked on other applicable penalties.

The EDD may waive standard late-payment and underpayment penalties for good cause. Fraud penalties carry no waiver. Multiple violations compound quickly: an employer who files late, underpays, and submits an inaccurate report can face the 15% penalty three separate times on the same contributions, plus interest.

The Voluntary Plan Option

An employer can apply to the EDD for a Voluntary Plan (VP), a privately administered plan that replaces state SDI for both disability insurance and PFL. Approval requires:¹⁵

All the same benefits as the state SDI program, plus at least one benefit that is better.
Employee contributions no higher than the current SDI rate.
Written approval from a majority of eligible employees before the plan takes effect.

A VP does not reduce administrative work; it shifts it to the employer or a third-party administrator, who then handle claims processing and benefit payments. VP employers also pay an EDD assessment fee equal to 0.182% of covered wages, calculated as the worker contribution rate times 14%.¹⁶

Recordkeeping

Federal law requires employers to keep employment tax records for at least four years after filing the fourth-quarter return for the year, and that covers the SDI withholding records that fund PFL.¹⁷ California wage and payroll requirements generally align with or exceed that minimum.

Beyond payroll data, keep copies of every DE 2503F notice and the employer’s response, all leave designation letters sent to employees, and proof of brochure and pamphlet distribution. If a dispute arises over notification or claim response, those records are the employer’s first line of defense.

1
Employment Development Department. Required Notices and Pamphlets
2
Employment Development Department. Employer Requirements for Disability Insurance and Paid Family Leave
3
Employment Development Department. SDI Contribution Rate 2026
4
Employment Development Department. Calculating Paid Family Leave Benefit Payment Amounts
5
Employment Development Department. Paid Family Leave Benefits and Payments FAQs – Section: Who Pays for PFL?
6
Employment Development Department. Paid Family Leave
7
Employment Development Department. FAQs – Paid Family Leave Eligibility
8
California Civil Rights Department. Family Care and Medical Leave Fact Sheet
9
U.S. Department of Labor. Fact Sheet 28 – The Family and Medical Leave Act
10
California Civil Rights Department. Family Care and Medical Leave Quick Reference Guide
11
eCFR. 29 CFR 825.209 – Maintenance of Employee Benefits
12
Internal Revenue Service. Revenue Ruling 2025-4
13
Internal Revenue Service. Notice 2026-6 – Extension of Transition Period for Revenue Ruling 2025-4
14
Employment Development Department. Penalty Reference Chart (DE 231EP)
15
Employment Development Department. Become a Voluntary Plan Employer
16
Employment Development Department. Contribution Rates and Benefit Amounts
17
Internal Revenue Service. Employment Tax Recordkeeping