If you run payroll in California, 2026 is not a “set it and forget it” year. A few small-looking changes (especially deposit thresholds) can create real penalty exposure if your payroll system, provider, or internal controls aren’t updated before your first January payroll closes.

What changed on January 1, 2026 (and why you should care)

1) Minimum wage increased to $16.90/hour

California’s statewide minimum wage is now $16.90/hour (effective Jan 1, 2026).

Reality check: many cities/counties are higher, and California explicitly warns employers to check local ordinances.

2) Exempt salary floor increased to $70,304/year

For the classic “white-collar” exemptions, California ties the minimum salary requirement to twice the state minimum wage for full-time employment. DIR/Labor Commissioner explicitly states the 2026 minimum annual salary is $70,304.

Compliance risk: if someone is treated as exempt but paid below the threshold, you’ve got a misclassification problem (overtime, meal/rest premium exposure, etc.). This is a clean “audit finding” for plaintiffs’ counsel.

EDD 2026 rate landscape (budget + accrual implications)

EDD posted the 2026 payroll tax rates and the wage-limit mechanics. Here’s the operational takeaway:

Employer-paid taxes (P&L cost drivers)

UI (Unemployment Insurance): 2026 rate schedule is Schedule F+ with rates ranging 1.5% to 6.2%, applied to the first $7,000 of wages per employee, per year. Your actual rate depends on your assigned UI rate (DE 2088).
ETT (Employment Training Tax): 0.1% on the first $7,000 of wages per employee, per year.

Budgeting note: UI cost is not “flat.” It’s an employer-specific rate. EDD reminds employers to review DE 2088 and update payroll software/payroll agents so the right rate gets applied.

Employee withholdings you remit (cash + liability controls)

SDI (includes PFL): employee withholding rate is 1.3% for 2026, and all wages are subject (no wage cap).
CA PIT withholding: driven by EDD withholding schedules and the employee’s DE 4/W-4 elections. EDD hosts the 2026 schedules in two methods (A and B).

Accrual note: UI/ETT are employer expenses. SDI/PIT are employee withholdings but still create cash timing and remittance risk—your liability account needs to tie to actual deposits.

The sleeper issue: PIT deposit threshold drops to $400

EDD announced that beginning Jan 1, 2026, the California PIT deposit threshold changes to $400 from $500 for next-day and semi-weekly depositors.

This matters because deposit frequency is driven by:

your federal deposit schedule, and
your accumulated state PIT withheld (now measured against the new threshold).

Penalty exposure is not theoretical: EDD states late payroll tax payments can trigger a 15% penalty plus interest.

“Update Your System Today” Checklist (do this before the first 2026 payroll closes)

A) Wage + classification controls

Update payroll system minimum wage floor to $16.90/hour (and confirm local wage overrides where applicable).
Run an exempt salary audit: anyone under $70,304 gets flagged for immediate correction/reclassification review.

B) Rate tables + employer notices

Pull your 2026 DE 2088 and update your UI rate in payroll software/provider settings.
Confirm ETT is set to 0.1% and wage limit logic is $7,000 for UI/ETT.
Confirm SDI withholding is set to 1.3% and no wage cap logic remains in place.

C) Withholding schedules (don’t wing it)

Download and implement the 2026 CA withholding schedules (Method A or Method B) from EDD.
Confirm onboarding uses DE 4 and your process handles employees who don’t submit it (default withholding rules).

D) Deposit cadence + cash controls

Update internal controls for the $400 PIT threshold for next-day/semi-weekly deposit logic (and confirm your payroll provider actually implemented it).
Add a January control: reconcile PIT/SDI liabilities to deposits after each payroll run (especially for high payroll weeks).

Quick “who should worry most” filter

You’re most exposed if you:

run semi-weekly or next-day deposits already,
have thin back-office controls (or multiple payroll streams),
pay exempt staff close to the old threshold, or
operate in multiple CA cities (local wages).