Employer of record in California: the employer test, payroll registration and what the client still owns (2026)

California has no license or registration for PEOs or employer of record (EOR) providers that we could find as of October 2026. What it has instead is a test: under Unemployment Insurance Code section 606.5, a leasing or temporary services employer that performs all seven functions the statute lists is the worker's employer for payroll taxes, and a provider that does not is only paying wages as the client's agent, which leaves the client as the employer. On top of that, Labor Code section 2810.3 makes larger client employers share liability for unpaid wages and missing workers' compensation, and no contract can move Cal/OSHA duties off the client.

This page is for a company outside California, or a staffing firm, deciding whether to employ someone in California through an EOR or PEO or to register itself. How an EOR, a PEO, a staffing agency and payrolling differ is in what is an employer of record and payrolling services explained; the full California hiring checklist is in hiring employees in California; and the talent agency, job seeker fee and home care licensing tracks are in staffing agency license in California. This page adds the employer test, workers' compensation, shared liability and what stays with you.

California employer of record rules at a glance

Does California license employer of record companies or PEOs?

Not that we could find. Florida licenses employee leasing companies, Texas licenses PEOs, and New York and Hawaii register them, but we found no California statute or agency program that licenses or registers PEOs or EOR providers as of October 2026. California's placement licenses are organized by type of work instead: the Labor Commissioner licenses talent agencies, the Civil Code bonds agencies that charge job seekers, and the Department of Social Services licenses home care organizations, as our California licensing guide explains. So the California question is not "is the provider licensed" but "is the provider actually the employer."

Who is the employer for California payroll taxes?

Unemployment Insurance Code § 606.5(b) defines a "temporary services employer" and a "leasing employer" as an employing unit that contracts with clients to supply workers and performs all of these functions:

1. Negotiates with clients over time, place, type of work, working conditions, quality and price.
2. Determines assignments or reassignments, even though workers may refuse specific assignments.
3. Retains the authority to reassign a worker to other clients when a client finds the worker unacceptable.
4. Assigns or reassigns the worker to perform services for a client.
5. Sets the worker's rate of pay, whether or not through negotiation.
6. Pays the worker from its own account or accounts.
7. Retains the right to hire and terminate workers.

Section 606.5(c) then says that a provider meeting the test "is the employer of the employee who performs the services," and that one that does not is not: "the client or customer is the employer," and a provider that pays the wages anyway "pays the wages as the agent of the employer." The EDD's information sheet on employer determinations with multiple entities (DE 231F) spells out the consequence: the employer is responsible for reporting the wages, paying unemployment insurance and the Employment Training Tax, and withholding State Disability Insurance, which includes Paid Family Leave, and personal income tax.

This is where many "EOR" arrangements need a second look. A provider that runs payroll for a person you recruited, at a rate you set, with no real right to reassign or terminate, may fail the test, which would make you the employer for EDD purposes, needing your own account. Section 606.5(d) adds a loaned-employee rule: when direction and control shift to the borrowing employer, whichever company pays the worker is the employer for the pay it provides.

Who carries workers' compensation in California?

Every California employer except the state must be insured or self-insured from the first employee (Labor Code § 3700). For workers supplied by another employer, § 3602(d)(1) lets the client secure that obligation "by entering into a valid and enforceable agreement with that other employer under which the other employer agrees to obtain, and has, in fact, obtained workers' compensation coverage for those employees." Both companies are then treated as having secured compensation, as long as the coverage "remains in effect for the duration of the employment," and the agreement may not be made to avoid the client's proper experience rating. Under § 3602(d)(2), employers that have not complied may face civil, criminal or other penalties and tort liability. Keep the agreement and a current certificate on file.

Does Labor Code 2810.3 make the client liable for an EOR's workers?

It can. Section 2810.3(b) says a client employer "shall share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor" for the payment of wages and for failure to secure valid workers' compensation coverage. The key definitions:

• Client employer: a business that obtains workers from a labor contractor to perform labor within its usual course of business, but not one with fewer than 25 workers in total, not one with five or fewer supplied workers at any given time, and not the state or a local government.
• Usual course of business: "the regular and customary work of a business, performed within or upon the premises or worksite of the client employer."
• Worker: excludes employees exempt from overtime as executive, administrative or professional employees under the wage orders.
• Employee leasing exception: a party to an employee leasing arrangement as defined in the state's workers' compensation experience rating plan is not a labor contractor if the arrangement contractually obligates the client employer to assume all civil legal responsibility and liability under the section.

Before suing a client employer, a worker must give it 30 days' notice of the violations (§ 2810.3(d)), and a waiver of the section "is void and unenforceable" (§ 2810.3(m)). The client can still seek indemnity from the provider by contract (§ 2810.3(g)). Federal and other state joint employer tests apply as well; see joint employer liability for staffing agencies.

Which registrations, reports and notices still apply?

• EDD account: held by whichever company is the employer under § 606.5; the EDD's 15-day registration rule and the four payroll taxes are summarized in our California hiring checklist.
• Withholding certificate: the DE 4, alongside the federal W-4.
• New-hire report: the DE 34 to the EDD within 20 calendar days of the start-of-work date; agree which party files it.
• Notices at hire: the Labor Code § 2810.5 wage notice, the Workplace Know Your Rights notice, the workers' compensation notice and the sexual harassment information sheet, all listed in the hiring checklist. Agree in writing which party sends each one.
• E-Verify: California bars running it on an applicant before an offer; see E-Verify requirements in California.

What does the client company still own in California?

• Workplace safety. Section 2810.3(c): a client employer "shall not shift to the labor contractor any legal duties or liabilities" under the Cal/OSHA division of the Labor Code for supplied workers.
• Job postings. Employers with 15 or more employees must include a pay scale and give it to any third party that posts for them; see the California pay transparency law. No salary history questions, by you or an agent.
• Screening. Criminal history waits until after a conditional offer under the Fair Chance Act, and the FEHA rules on automated decision systems treat a vendor acting for you as your agent; see California AI hiring regulations.
• Interviews. All-party consent before recording or transcribing; see the California call recording guide.
• Offer letters. Keep non-compete clauses out; see California non-compete laws.

When is registering your own company in California the better route?

• The provider would fail the seven-function test. If it does not set pay, assign and reassign, and keep the right to hire and terminate, you may be the employer anyway, without an EDD account.
• You expect several California employees. The EDD account, workers' compensation, the DE 4 and DE 34, and the notices at hire are the same whether you have one employee or ten.
• You have 25 or more workers. Section 2810.3 already puts wage and workers' compensation liability on you for non-exempt supplied workers in your usual course of business.
• The engagement is short. A staffing firm that genuinely employs and assigns the worker may fit better than an ongoing arrangement.

Questions to ask an employer of record or PEO before signing for California

1. Do you perform all seven functions in Unemployment Insurance Code § 606.5(b) for our worker? Which ones do we keep?
2. Whose EDD employer account will report the wages, and will you withhold SDI and personal income tax?
3. Will you sign a written agreement to obtain workers' compensation for our worker under Labor Code § 3602(d), and send us the certificate?
4. Which workers' compensation class code will you use for the actual duties?
5. How does our contract allocate liability under § 2810.3, and what indemnity do you give?
6. Who sends the § 2810.5 wage notice and the other notices at hire, and who files the DE 34?
7. Who handles Cal/OSHA training, injury reporting and the worksite safety program?
8. Are you an IRS certified professional employer organization, and who is liable for federal employment taxes if you fail to pay?
9. How are paid sick leave, final pay and any local city rules handled where the worker lives?

Comparing states? Texas licenses PEOs through its Department of Licensing and Regulation (employer of record in Texas), and Florida licenses employee leasing companies (employer of record in Florida).