California’s Senate Bill (SB) 951, signed by Governor Gavin Newsom in September 2022 and taking effect on January 1, 2024, removes the wage cap for SDI tax withholdings and increases wage replacement rates for California workers out on family leave or disability.
Although the new withholding rules will start in 2024, new paid leave benefits will not be in effect until January 1, 2025.
- Beginning January 1, 2024, SB 951 removes the wage cap on California’s State Disability Insurance (SDI) tax, thereby making all wages subject to contributions into the SDI fund. The SDI program funds California’s paid family leave (PFL) and disability insurance programs through a deduction on most workers’ paychecks. While total withheld amounts will increase as a result of this new law, no additional or independent funding will be required from employers.
- For 2023 and 2024, the bill will keep the program’s current wage replacement rates, which are 70 percent of paychecks for the lowest-wage workers that earn as much as $27,000 a year, and 60 percent of paychecks for other workers.
- Beginning in 2025, lower-wage workers, who are defined as workers that earn less than 70 percent of the state’s average wage, will be eligible to receive 90 percent of their paychecks while on leave. Other workers will receive 70 percent of their paychecks while on leave.
- Employees can apply for PFL and disability benefits while on unpaid leaves, such as under the California Family Rights Act (CFRA), California’s pregnancy disability law, and the federal Family Medical Leave Act (FMLA).
- The new law does not affect the total number of weeks of SDI benefits that may be paid. As a reminder, no more than eight weeks of family temporary disability insurance benefits shall be paid within any 12-month period.
This is an active time for leave-related legislation. Each year, states nationwide review and revise their legislation to make it more accessible. If your team is managing leave in multiple states, staying abreast of these frequent changes can be a struggle. Outsourcing employee leave to Sparrow, the first true end-to-end leave management provider for modern employers, can provide you with confidence in your leave compliance.