You may also have missed one of the biggest deadlines of your life–and you are not even aware of it yet–you may do it if you are running a small business in California. On January 1, 2026, the CalSavers retirement requirement will be extended to include all California employers with at least one employee.
This implies that, even in cases where you have a single W-2 employee, be it a full-time employee or a part-time employee, and even seasonal employees, you cannot legally escape the provision of access to a retirement plan, or you will face hefty fines. Look for a tax expert (like a Pasadena tax lawyer)who can guide you in the best possible direction.
What is CalSavers?
CalSavers is the California state-sponsored retirement savings program. It is used as a Roth IRA among employees of the private sector, where the employer has no established retirement plan. The default contribution rate is 5% of gross pay, which is automatically applied to the employees. Still, they have the option of opting out or modifying their contribution rate at any point in time.
Importantly, for small businesses that are cash-strapped, CalSavers is free to employers. The fees of an employer are nonexistent, there is no need for matching contributions on the part of an employer, and no fiduciary liability. The state deals with accounts management and investment options, and you are only required to facilitate payroll deductions.
Who Must Comply with The Law?
The requirement is on any Californian business that
Employs a minimum of one W-2 employee (not the owner)
Lacks no existing qualified retirement plan (401(k), SEP IRA or SIMPLE IRA)
When you are a sole proprietor and you do not have employees, then you are exempted. The clock, however, begins to tick as soon as you hire somebody.
Understand the Penalty Trap
Not doing it is not a smack in the face, but a full-blown strike at the bottom line. The Franchise Tax Board imposes fines, and they increase rapidly:
- The amount of 250 per eligible employee in case of a failure within 90 days of notice.
- Further addition to the amount mentioned above (that is, $500 per eligible employee) in case of non-compliance for over 180 days.
- On a business of only two workers, that would be a possible 1500 dollars in fines, money that could have been used to grow, purchase equipment, or just to pay yourself.
See also: Address Planning for Businesses Preparing for Expansion and Restructuring
You Have Two Paths as Options
There are two options to meet the state requirement:
Alternative 1: Enroll in CalSavers
This is the easiest path for the majority of micro-businesses. On the CalSavers employer portal, you register online, provide a list of eligible employees, and make arrangements to deduct from the payroll. You have no costs to make, and the program takes care of the rest. When you are in doubt, contact a professional (from reputed tax law firms in San Diego).
Alternative 2: Provide a Qualified Plan
A private retirement plan, such as a 401(k) or SIMPLE IRA, would be a good option, though, should you wish to provide your employees with flexibility or increase their contribution limits. This would offer tax benefits to your business according to the SECURE 2.0 Act, where startup tax credits would cover 100 percent of the cost of your plan in the first three years.
Steps You Must Take
In case you have not covered this yet, then panic is unnecessary–but do it now. Here is your checklist:
- Go to the web address of calsavers.com and select the option of Employers – Register or Exempt.
- You will require your Federal Employer Identification Number (FEIN) and your California payroll tax number with the Employment Development Department (EDD) of California.
- Select either registering in CalSavers or certifying an exemption in case you are already enrolled in a qualified plan.
- In case you have a payroll service, make sure they are configured to process the CalSavers deductions in case you decide to go that way.
The CalSavers expansion is a tectonic shakeup for the small businesses in California. What previously was a necessity of a large corporation is now a need of your neighborhood coffee shop, your freelance business that has one assistant, and every micro-business in between.
However, now is not the time to compromise with compliance in your case as a business owner. Spend 20 minutes going to the CalSavers portal today. Register in the program or certify exemption. Your future self and your bank account will be grateful for the fact that you do not owe those 750 penalties per employee.
