California Foreign LLC Employees Payroll Tax

Learn about the California payroll tax and employment prerequisites. Discover how Harbor Compliance helps set up payroll tax accounts and expand seamlessly.

Summary of Facts

• To hire employees in California, foreign LLCs (those not organized in the state) will invest between $1,000 and $2,000 and two to four weeks, depending on the filing method.
• California is the 39th most expensive of 51 U.S. jurisdictions in terms of registration fees. However, its LLC annual tax is significantly higher than most states in the U.S.
• California is the 30th fastest of 51 U.S. jurisdictions in terms of online processing times and 20th based on mail processing.

Hiring in California: A Guide for Foreign LLCs

One key requirement for any entity intending to operate and hire in California is remitting payroll taxes to the state government. Two of the four payroll taxes in California are fully funded by employers, while the rest are withheld from workers’ wages. Employers must keep track of these taxes, open payroll tax accounts, and submit filings regularly to maintain good standing and avoid penalties.

Furthermore, foreign entities intending to expand into California must be aware of the state’s payroll tax rates, foreign qualification requirements, and other regulatory obligations. Given the complexity of these requirements, many organizations choose to partner with service providers like Harbor Compliance, which helps manage filings and ensures adherence to state regulations.

In this article, we’ll explore California payroll tax, essential employment prerequisites, and key requirements foreign LLCs need to know. We’ll also highlight how Harbor Compliance’s Payroll Tax Registration Service and other filing support make expanding into California seamless.

Key Prerequisites for Employing Workers in California

Aside from filing formation documents with the California secretary of state, businesses must meet additional requirements before hiring employees. Employers must:

1. Complete required registration and licensing specific to their industry
2. Secure a California Employer Identification Number (EIN)
3. Obtain workers’ compensation insurance coverage
4. Provide new employees with notice of rights related to domestic violence, sexual assault, and stalking

1. Complete Required Registration and Licensing Specific to Their Industry

To offer services like engineering, architecture, or similar professional fields in California, you must be registered, certified, or licensed before operating. Various state agencies oversee the licensing and registration processes for businesses in these industries, ensuring that all practitioners meet California’s professional standards.

2. Secure a California Employer Identification Number (EIN)

If you hire at least one employee and pay them over $100 in wages within a calendar quarter, you are subject to employment tax laws in California. Consequently, you must register with the Employment Development Department (EDD) to obtain an Employer Identification Number (EIN). The EIN you obtain from the EDD is used to manage and remit the California employer payroll taxes on behalf of employees.

3. Obtain Workers’ Compensation Insurance Coverage

In California, employers are generally required to secure workers’ compensation insurance or obtain state approval to self-insure the required benefits before hiring employees. Workers’ compensation insurance is crucial as it financially supports employees who suffer work-related injuries or illnesses and covers medical expenses and wage replacement.

4. Provide New Employees With Notice of Rights Related to Domestic Violence, Sexual Assault, and Stalking

In California, all employers must provide employees with a Notice of Rights for Victims of Domestic Violence, Sexual Assault, and Stalking upon request. The Labor Commissioner has developed an official notice for this purpose. Employers choosing to use their own version must ensure it includes content substantially similar in detail and clarity to the Labor Commissioner’s notice.

California Name Reservation and Doing Business As (DBA) Guidelines

Your business name must be distinguishable from other entities registered in California. If you haven’t started the registration process but want to ensure your chosen name remains available, you can reserve it with the secretary of state for a limited time.

Name reservations in California last for 60 days, and while you can renew, consecutive 60-day reservations aren’t allowed. There must be a one-day gap between each reservation period. The name you intend to reserve must also meet federal and state requirements for your specific business type.

The state filing fee for name reservation in California is $10, and the process can be completed through the California Bizfile Online platform. To streamline this process, Harbor Compliance offers a Name Reservation Service that assists in filing with the secretary of state. This ensures your desired business name is protected and ready for use when you’re prepared to register.

California Doing Business As (DBA) Requirements

Name reservation and Doing Business As (DBA) registrations serve different purposes. With name reservation, you ensure a name is available when you’re ready to register your business. In contrast, a DBA allows an already-registered entity to operate under a different name.

To register a fictitious name in California, follow these steps:

1. Conduct a preliminary name check to ensure the chosen name isn’t in use.
2. File a Fictitious Business Name Statement with the county clerk in your entity’s location.
3. Within 30 days of filing, publish the DBA in an approved newspaper in your business’s county.

There’s no fixed fee for filing the Fictitious Business Name Statement as each county sets its own rates, typically ranging from $25 to $100. Newspaper publication costs should also be factored in. Additionally, a DBA must be renewed upon expiration.

Harbor Compliance provides end-to-end DBA management, handling everything from document preparation and filing to government follow-ups. We ensure your business meets all DBA requirements efficiently and that you can operate under your chosen fictitious name.

Foreign Qualification Requirements for Out-of-State Employers in California

Foreign qualification is required when a business intends to engage in repeated transactions in California, which goes beyond interstate commerce. Once qualified, a business can set up a California state payroll tax account to remit taxes on behalf of its employees. This ensures adherence to California’s employment and payroll tax laws and helps avoid potential penalties.

To complete the foreign qualification process, out-of-state businesses must follow these steps:

1. Ensure name availability
2. Obtain proof of good standing
3. Appoint a registered agent
4. File for a Certificate of Authority

1. Ensure Name Availability

If you haven’t reserved your business name before qualifying in California, it’s important to verify that the name is still available.

You can perform a preliminary name search through the California secretary of state’s database to check for other entities with similar or identical names. Additionally, Harbor Compliance offers name search services that comb the secretary of state’s database, enabling us to conduct the preliminary search on your behalf.

If your chosen name isn’t available, you may need to adopt an alternate name to meet California’s requirements. This ensures your business can legally qualify to operate in the state without conflicts with existing entities.

2. Obtain Proof of Good Standing

To qualify as a foreign entity in California, your business must present a valid Certificate of Good Standing issued by an authorized public official in the state where your entity was originally organized. This document proves that your business adheres to its home state’s regulations. Harbor Compliance simplifies the process with the Entity Manager module, which is included in our proprietary Software Suite. This tool allows you to track where your entity is registered and verify its standing.

The certificate attached to your application must be recent, often within 60 to 90 days of filing. You can usually obtain the Certificate of Good Standing from your formation state, with fees ranging between $10 and $50, depending on the state. Harbor Compliance can support this process by handling the paperwork and securing the certificate on your behalf. Our team ensures you receive an up-to-date certificate, making it easy to attach it to your application for a foreign qualification in California.

3. Appoint a Registered Agent

One important aspect of expanding your business into another state is appointing a registered agent responsible for receiving legal documents in the new jurisdiction. Typically, a registered agent can cost between $100 and $200. Instead of managing multiple registered agents across different states, having a nationwide registered agent who can handle all correspondence for your different entities is more efficient.

Harbor Compliance can help you effectively navigate this requirement. With our local offices throughout the U.S., we can serve as your registered agent, ensuring you receive all important legal documents promptly.

4. File for a Certificate of Authority

To complete the foreign qualification process in California, your business must obtain a Certificate of Authority from the state. Foreign limited liability companies (LLCs) can file for this certificate online or by mail. The filing fee for the Certificate of Authority is $70.

It’s important to note that the California secretary of state has frequently returned many paper documents submitted for limited liability companies due to errors, omissions, or misstatements, often delaying the filing process.

Partnering with Harbor Compliance to secure your Certificate of Authority can mitigate these risks. Our experienced team will ensure your application is complete and accurate, helping you avoid common pitfalls.

Maintaining Your LLC’s Good Standing in California

Once your entity has successfully qualified in California, it’s crucial to protect your investment by maintaining good standing in the state. This ensures you can continue operating and avoid legal issues. Maintaining good standing involves adhering to various regulatory requirements that apply to your business entity, including:

1. Submitting your initial report
2. Filing your annual reports

1. Submitting Your Initial Report

An initial report is a document that newly registered LLCs must file to provide essential information about their entity. In California, LLCs must file their initial reports within 90 days of incorporation or qualification. The turnaround time varies based on the filing method, whether online or by mail. Missing the filing deadline can lead to penalties, with a $250 fine for late submissions.

Harbor Compliance offers an initial report filing support service to help businesses meet this requirement accurately and on time. With our assistance, you can avoid costly penalties and ensure your initial report is filed correctly and promptly, allowing you to stay focused on other aspects of growing your business in California.

2. Filing Your Annual Report

In California, an annual report provides the state with updated information on your business. The due date for annual reports usually depends on your entity type and often aligns with your anniversary month of formation or registration. For most companies, the report is due biennially by the end of the formation or qualification month. The filing fee is $20, and reports can be filed up to five months in advance.

Harbor Compliance offers support for filing annual reports for LLCs and other entity types. Our Entity Manager software also tracks your annual report due dates, ensuring you never miss a reporting deadline.

Managing Your California Out-of-State LLC Tax Filings

In addition to filing reports with the secretary of state, foreign entities operating in California must also manage their tax filing obligations. Once you complete the foreign qualification, various tax requirements are triggered, and it’s crucial to track them, remit payments, and file returns by their due dates.

Managing these obligations can be complex, especially with varying exemptions and requirements, but software solutions simplify the process. Harbor Compliance’s Tax Manager module in the Software Suite is built for this purpose. Its features include:

• Centralized storage for all tax filings
• Tracking of federal, state, and local tax exemptions and requirements
• Monitoring of tax identification numbers and essential tax information

California LLCs are typically subject to most of the following taxes:

1. LLC annual tax
2. LLC fee
3. Sales and use tax
4. State payroll tax

1. LLC Annual Tax

LLCs organized or doing business in California must pay an annual tax of $800 and use the Limited Liability Tax Voucher to file with the state. This tax applies each year that the LLC remains active in the state and continues until the LLC is formally canceled. However, LLCs established for tax years starting on or after January 1, 2021, and before January 1, 2024, are not required to pay this tax in their first year.

Payments can be made online or by mail. The initial tax payment is due by the 15th of the fourth month after filing with the secretary of state.

2. LLC Fee

In addition to the annual $800 LLC tax, California LLCs with income over $250,000 in a tax year are subject to an additional LLC fee. This fee is determined based on the LLC’s annual income. Your entity is expected to remit the tax using the Estimated Fee for LLCs form by the 15th day of the sixth month of the tax year.

The table below provides an estimated breakdown of fee requirements based on your LLC’s income:

California LLC Income	LLC Fee Required
$250,000–$499,999	$900
$500,000–$999,999	$2,500
$1,000,000–$4,999,999	$6,000
$5,000,000 and above	$11,790

3. Sales and Use Tax

California distinguishes between sales and use tax for businesses. Sales tax applies to physical merchandise purchased in California and is collected by in-state retailers. On the other hand, use tax is assessed on purchases made from businesses outside California or foreign goods brought into the state for use, storage, or consumption.

Businesses engaging in retail sales in California must register with the California Department of Tax and Fee Administration (CDTFA) to collect and remit sales and use taxes. This registration, known as a seller’s permit, is required to adhere to state tax laws.

Harbor Compliance offers a Sales and Use Tax Registration Service to help you obtain a seller’s permit. Our service ensures that your registration is completed without delay so that you can start business operations hitch-free.

4. Payroll Tax

Any entity employing at least one worker and paying wages over $100 per quarter must remit the following California payroll taxes:

• Unemployment Insurance (UI)
• Employment Training Tax (ETT)
• State Disability Insurance (SDI)
• Personal Income Tax (PIT)

The employer’s portion of payroll tax in California is the UI and ETT, while SDI and PIT are deducted from employees’ paychecks. To begin remitting these payroll taxes, businesses must apply for a license online or by mail.

Additionally, California payroll reporting requirements are as follows:

• New employee reporting—Employers must add each new or rehired employee to the New Employee Registry within 20 days of their start date.
• Final filings—If a business closes, final tax returns, wage reports, and payments must be submitted within 10 days, and the payroll tax account should be closed.
• Ending employment—If the business remains open without active employees, the employer must submit final forms and close the payroll tax account.

Harbor Compliance’s Payroll Tax Registration Service supports you in opening the necessary payroll tax accounts with the EDD for your CA payroll taxes. We handle the registration steps so you can focus on your business while adhering to California’s payroll tax regulations.

Streamlining Your LLC Expansion With Harbor Compliance

Expanding your business into California requires navigating complex regulations, managing state-specific requirements, and ensuring good standing across jurisdictions. California’s regulatory landscape for out-of-state LLCs involves obligations like foreign qualification, payroll tax registration, initial reports, and the annual LLC fee.

Harbor Compliance offers comprehensive support, from securing a DBA and name reservation to filing annual reports. Our Software Suite, featuring Entity Manager and Tax Manager, is designed to track reporting deadlines and streamline regulatory and tax filings.

Harbor Compliance ensures your regulatory responsibilities are handled with precision and care, giving you the peace of mind to concentrate on your business. To get started, use the free Harbor Compliance Score™ to check your standing with state requirements and schedule a demo session to learn about our Software Suite and its modules. Afterward, you can visit our Business Compliance page to explore our available solutions, from Payroll Tax Registration to Foreign Qualification.