CalSavers: What California Small Businesses Must Do in 2026

There is a California retirement law that took effect January 1, 2026, that many small business owners in Orange County have not yet dealt with. It requires every employer in the state with at least one employee to either offer a qualified retirement savings plan or enroll their workers in the state-run CalSavers program.

If you are running a restaurant, salon, retail shop, or landscaping company and you do not already offer a 401(k) or IRA program, this applies to you. The penalties for non-compliance can reach $750 per employee. For a team of 10, that is $7,500 in fines.

Here is what you need to know.

What CalSavers Is

CalSavers is a retirement savings program run by the California Secure Choice Retirement Savings Board. The state created it to make sure hourly workers and employees without access to a traditional 401(k) have a way to save for retirement.

For employees, it works like a Roth IRA. Money comes out of each paycheck after taxes. The default contribution rate is 5% of gross pay, and it increases automatically by 1% per year until it reaches 8%. Employees can change their contribution rate or opt out entirely at any time.

For employers, the program is free. You are legally prohibited from contributing to employee accounts. Your only responsibilities are registering with CalSavers, uploading your employee roster, and processing payroll deductions each pay period.

The administrative time is modest. Most business owners complete the initial setup in under an hour.

Who Has to Comply

California rolled out this requirement in phases starting in 2020, beginning with large employers. The final expansion happened January 1, 2026.

As of that date, every California employer with at least one employee must either:

• Register for CalSavers and enroll eligible employees, or
• Certify an exemption because they already offer a qualified retirement plan (401(k), SEP IRA, SIMPLE IRA, or similar)

If you already have a 401(k) in place, you are not required to join CalSavers. But you must go to the CalSavers employer portal and certify your exemption. Skipping that step leaves you technically non-compliant even if your existing plan is perfectly adequate.

This catches a lot of business owners off guard. You assume having a plan means you have nothing to do. But the state needs confirmation, and having a 401(k) without a filed exemption is still a violation on paper.

What the Penalties Look Like

This is not a soft suggestion. The Franchise Tax Board is actively enforcing it.

If you receive a notice of non-compliance and do not act:

• $250 per eligible employee after 90 days from the notice date
• Another $500 per eligible employee after 180 days (total of $750 per employee)

For a cleaning company in Fullerton with 10 employees, that is $7,500 in avoidable fines. For a restaurant in Santa Ana with 20 employees, it is $15,000. The fines accumulate fast, and paying them does not bring you into compliance. You still have to register.

The state is prioritizing outreach to small employers first since they were the last group covered. Do not wait for the letter.

How to Register: Step by Step

If you do not have a qualifying plan in place, here is exactly what to do.

Step 1: Gather your information. You will need your Federal Employer Identification Number (EIN), your California payroll tax number, and your CalSavers Access Code. If you did not receive an Access Code in the mail, you can look it up at employer.calsavers.com using your EIN.

Step 2: Register at employer.calsavers.com. The registration process takes about 15 to 30 minutes. You create an account, confirm your business information, and submit.

Step 3: Upload your employee roster. You have 30 days after registration to submit your employee list. Required information for each employee includes name, Social Security Number, date of birth, and mailing address.

Step 4: The 30-day employee notification window. CalSavers sends each employee a notice explaining the program. Employees have 30 days to adjust their contribution rate or opt out. If they do nothing, they are automatically enrolled at the default 5% rate.

Step 5: Begin payroll deductions. Starting on your next payroll after the 30-day window closes, you deduct and remit each enrolled employee's contribution through the CalSavers portal.

Going forward, you must add new employees to CalSavers within 30 days of their hire date. Build this into your standard onboarding checklist alongside I-9 forms and direct deposit setup. For a look at what a full onboarding process should include, see our guide on onboarding new employees at a small business.

CalSavers vs. Setting Up a 401(k)

Some business owners look at the CalSavers requirement and decide they would rather set up their own plan. That is a legitimate option, and depending on your situation, it might be the right move.

Here is how the two compare.

CalSavers:

• No cost to the employer
• Roth IRA structure (after-tax contributions only)
• No employer match allowed
• 2026 employee contribution limit: $7,000 per year
• Minimal administrative work once set up

401(k):

• Setup and ongoing costs vary. Small business-focused providers typically run $100 to $200 per month for a basic plan.
• Traditional pre-tax contributions in most cases
• Optional employer match allowed
• 2026 employee contribution limit: $23,500 per year
• Federal tax credits available: up to $5,000 per year for three years to offset startup costs

For businesses with tight margins and fewer than five employees, CalSavers is usually the right starting point. It meets the legal requirement with minimal work and no out-of-pocket cost.

For businesses actively competing for workers, a 401(k) gives you something to put in a job listing. "We offer a 401(k) with employer match" is a real differentiator in a market where a server in Newport Beach is comparing three offers at similar pay. The annual federal tax credits often reduce the net cost significantly, especially in the first three years.

We go deeper on total benefits packages in our guide on employee benefits for hourly workers at small businesses.

What Your Employees Will Ask You

When CalSavers launches at your business, most employees will have questions. Being prepared to answer them honestly builds trust.

"Do I have to do this?" No. Participation is voluntary. They can opt out within 30 days of receiving the notice. If they do nothing, they are enrolled at 5%.

"Does it cost me money?" There is a fixed annual account fee of $174 and a small percentage-based fee on investment holdings. These come out of the employee's account, not from payroll.

"What happens when I leave?" The account belongs entirely to the employee. When they leave your business, the funds go with them. They can roll the account over to another IRA, keep it in CalSavers, or leave it alone.

"Is this safe?" CalSavers is administered by the state. The default investment is a money market fund, but employees can choose from several target-date funds and other options.

Most employees at small businesses have never had access to a retirement savings option through their employer. According to the Bureau of Labor Statistics, access to retirement plans is significantly lower among part-time and hourly service workers than the general workforce. Being the business that offers it, even through the state program, is something worth communicating during onboarding.

How Benefits Connect to Hiring and Retention

Retirement savings are not the main reason a line cook stays at one restaurant versus another. Pay, schedule, and management quality matter more. But in a competitive market, benefits like CalSavers are part of the full picture.

A line like "retirement savings through CalSavers" on a job posting or in your onboarding packet signals that you are thinking about your employees as people with long-term interests, not just shift-fillers. That matters to applicants who have more options than they used to.

A salon owner in Irvine added the CalSavers mention to her job postings after registering. She said it generated questions from applicants who were impressed a small salon offered it. It cost her nothing except 30 minutes of setup time.

If you are thinking about the broader picture of why employees stay or leave, our posts on employee recognition for hourly workers and stay interviews as a retention tool are worth reading alongside this one.

The Full Picture of Employing Someone in California

One thing CalSavers makes clear is that hiring someone in California involves more than agreeing on a wage. There are payroll taxes, workers' comp requirements, meal and rest break rules, sick leave laws, and now a retirement mandate.

None of these are designed to hurt small businesses. But they add up, and staying on top of them takes real attention. If you have not done a full accounting of what each employee actually costs you, our breakdown of the true cost of hiring an employee at a small business walks through every line item from payroll taxes to onboarding time.

According to the CalSavers Retirement Savings Board, over one million California workers are now saving through the program. The state is not slowing down on enforcement outreach. Treat this the same way you treat your workers' comp renewal or your paid sick leave tracking. It is a compliance item with a deadline and consequences for missing it.

Where My Friendly Staff Fits In

The compliance side of running a small business in California has gotten more complex over the past decade. CalSavers is one more item on a list that already includes pay transparency disclosures, AB5 classification rules, and meal break tracking.

My Friendly Staff focuses on the hiring side of that picture, helping small businesses in Orange County screen applicants faster so owners spend less time on the phone. When you do find someone you want to bring on, you want the rest of the process to be as clean as possible. For a look at how faster screening works, see our guide on AI phone screening for small business.

What to Do Right Now

Here is the short version.

If you have no qualifying retirement plan: go to employer.calsavers.com and register this week. The initial setup takes under an hour. The penalty clock does not start until you receive an official notice from the state, but that notice is coming for businesses that have not registered.

If you already have a 401(k) or qualifying plan: log in to employer.calsavers.com and certify your exemption. It takes about five minutes.

If you are considering setting up a 401(k) instead: compare providers, look into the federal startup tax credits, and talk to your accountant about whether the switch makes sense for your size and margins.

Thirty minutes of setup now is a lot less painful than a $7,500 fine later. Get it done.