Updated June 20, 2025
California Remote Work Laws 2025: Essential Guide for Out-of-State Employers
Did you know that out-of-state employers with remote employees in California face unique compliance challenges that can result in costly penalties if overlooked? California's employment laws are among the most employee-friendly in the nation, extending significant protections to remote workers that often surprise companies based elsewhere.
For businesses operating across state lines, understanding California's distinctive legal requirements is no longer optional. The state's aggressive enforcement of worker classification, wage and hour regulations, and expense reimbursement laws creates substantial liability risks for unprepared employers. Additionally, California's privacy laws and workers' compensation requirements add layers of complexity that demand specialized knowledge.
This guide examines the essential legal requirements out-of-state employers must follow when employing remote workers in California, providing practical compliance strategies to protect your business while maintaining a productive remote workforce.
Understanding Worker Classification Under California Law
The proper classification of workers stands as the cornerstone of California employment law compliance. For out-of-state employers with remote workers in California, misunderstanding these requirements can lead to serious legal and financial consequences.
ABC Test Criteria for Remote Workers
California applies the stringent "ABC test" to determine whether workers qualify as employees or independent contractors. Under this test, workers are presumed to be employees unless the hiring entity can prove all three of these conditions:
- Condition A: The worker is free from control and direction of the hiring entity in performing work, both under contract terms and in practice
- Condition B: The worker performs work outside the usual course of the hiring entity's business
- Condition C: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed
For remote workers, Condition A analysis remains particularly challenging. Even when a worker operates from home with minimal supervision, courts examine whether the employer maintains "the type and degree of control a business typically exercises over employees" [1]. The physical location matters less than the nature of control—a California court noted that "the degree of control and direction over the production is no different when the sweater is knitted at home at midnight than if it were produced between nine and five in a factory" [1].
Condition B often becomes the stumbling block for many companies. If your remote worker performs services comparable to existing employees or core to your business operations, this prong likely fails. For instance, if a software company hires remote programmers as contractors, they would likely fail this test since coding is central to the company's business [2].
Misclassification Risks for Out-of-State Employers
The financial stakes for misclassification are substantial. Under Labor Code section 226.8, civil penalties range from $5,000 to $25,000 per violation for willful misclassification [2]. Beyond these direct penalties, employers face additional liabilities including:
- Payment of back wages, overtime, and meal/rest break premiums
- Unemployment insurance tax obligations
- Workers' compensation insurance requirements
- Employee expense reimbursements
- Employer-side payroll taxes plus interest
Furthermore, out-of-state employers must recognize that location doesn't exempt them from California's rigorous enforcement. A California-based remote worker misclassified as an independent contractor may file claims with state agencies or courts, creating jurisdiction even for companies without physical presence in the state [3].
AB 5 and Its Application to Remote Teams
Assembly Bill 5 (AB 5), effective since January 2020, codified the ABC test into California law. The legislation specifically targeted gig economy arrangements but applies broadly to all worker classifications [3].
For remote teams, AB 5 presents unique challenges. The law applies regardless of where the employer is headquartered—what matters is the worker's location. Therefore, even companies based outside California must comply with AB 5 for their California-based remote workers [3].
Remote work arrangements require particular scrutiny under AB 5. Simply labeling someone an "independent contractor" or having them sign an agreement stating such doesn't satisfy legal requirements [1]. Moreover, the physical separation between employer and worker doesn't automatically establish independence—courts examine the actual working relationship rather than just physical oversight.
Notably, certain occupations and business relationships have exemptions from the ABC test, though these exemptions are narrowly defined and carefully scrutinized [2]. Out-of-state employers should not assume their remote arrangements automatically qualify for these exceptions without thorough legal analysis.
Wage and Hour Compliance for Remote Employees
California's wage and hour laws apply with full force to remote employees, creating unique challenges for out-of-state employers. Unlike federal regulations, California employment laws follow California residents regardless of where their employer is based, necessitating strict compliance protocols for companies employing remote workers within the state.
Minimum Wage Requirements for 2025
Effective January 1, 2025, California's minimum wage will increase to $16.50 per hour for all employers [4]. This rate applies universally across the state irrespective of company size, marking a continuation of annual adjustments based on the Consumer Price Index [2]. Out-of-state employers must pay this minimum rate to all remote workers residing in California, even if lower wages are standard in the employer's home state. As an important consideration, several California cities and counties have established higher local minimum wages that supersede the state minimum [2].
Overtime Pay Rules for Non-Exempt Remote Workers
California's overtime rules extend beyond federal standards and apply fully to remote workers. Non-exempt remote employees must receive:
- 1.5 times their regular rate for hours worked beyond 8 per day or 40 per week [3]
- Double their regular rate for hours worked beyond 12 in a workday [5]
- 1.5 times their regular rate for the first 8 hours on the seventh consecutive workday [5]
Critically, employers must pay overtime regardless of whether it was authorized in advance [5]. During the pandemic, many remote employees began working longer hours without proper compensation—a practice that violates California law even when employees voluntarily extend their workday [6].
Meal and Rest Break Obligations
Perhaps surprisingly to out-of-state employers, California's meal and rest break requirements remain in full effect for remote workers. Employers must provide:
- A 30-minute uninterrupted meal period for shifts exceeding 5 hours, starting before the end of the fifth hour of work [7]
- A second 30-minute meal period for shifts over 10 hours [7]
- Paid 10-minute rest breaks for every 4 hours worked (or major fraction thereof) [8]
In addition, employers must pay one hour of premium pay at the employee's regular rate for each workday that a proper meal or rest period is not provided [9]. To maintain compliance, employers should establish clear break policies for remote workers and implement systems to document break periods appropriately.
Time Tracking and Recordkeeping Standards
Accurate timekeeping poses distinct challenges with remote staff. Nevertheless, out-of-state employers must implement reliable systems to track all hours worked by California-based remote employees [3]. Employers have an obligation to know or exercise "reasonable diligence" to determine all hours being worked—including after-hours emails and calls [10].
Especially notable for remote work scenarios, California law recognizes all time the employer "suffered or permitted" an employee to work as compensable, irrespective of whether such work was explicitly authorized [10]. Furthermore, California courts have increasingly questioned time-rounding practices, particularly where electronic timekeeping systems can record exact minutes [11].
To mitigate risks, out-of-state employers should establish clear policies requiring remote employees to record all work time accurately, implement appropriate technological solutions for time tracking, and create explicit procedures for requesting approval before working overtime hours.
Mandatory Reimbursements for Remote Work Expenses
Remote work has shifted substantial operating costs from employers to employees, prompting California to establish clear reimbursement requirements that out-of-state employers cannot ignore. California Labor Code Section 2802 mandates that companies reimburse employees for all necessary expenses incurred while performing their duties, including costs associated with working from home.
Internet and Phone Usage Reimbursement
Out-of-state employers must reimburse California remote workers for a "reasonable percentage" of their internet and phone bills when used for work purposes. According to the landmark case Cochran v. Schwan's Home Service, Inc. (2014), employers must pay this percentage even if employees incur no additional costs through unlimited data plans [12]. This obligation exists whenever employees have no practical alternative to using personal resources for business purposes [13].
Although courts have not precisely defined what constitutes a "reasonable percentage," the amount should reflect the proportion of business versus personal use [13]. Employers may either:
- Reimburse actual costs based on itemized invoices
- Provide a flat monthly stipend that adequately covers business usage
- Supply company-owned devices with unlimited data plans
Importantly, employees who believe the standard reimbursement insufficient can request higher amounts corresponding to their actual business use [13].
Home Office Equipment and Ergonomic Setup
Beyond connectivity costs, employers must typically cover expenses for:
- Computer equipment and accessories
- Printers and supplies
- Office furniture including ergonomic chairs and desks
- Any other equipment necessary for job performance [14]
The recent Thai v. International Business Machines Corporation case (2023) reinforced that remote workers must be reimbursed for necessary expenses regardless of who mandated the remote arrangement [14]. The court rejected arguments that government-ordered remote work created exceptions to reimbursement requirements.
California Labor Code Section 2802 Explained
California Labor Code Section 2802 defines reimbursable expenses as "all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties" [15]. This deliberately broad definition applies fully to remote work arrangements.
The law serves specifically to "prevent employers from passing their operating expenses on to their employees" [14]. Accordingly, if employees choose to work remotely when a fully equipped office is available, employers may not be obligated to reimburse home office expenses as they wouldn't be considered "necessary" [12].
For hybrid work arrangements, employers must reimburse expenses proportionally based on the percentage of time worked remotely [12]. Non-compliance risks are substantial—employers face potential class actions, Private Attorneys General Act claims, and liability for attorney's fees in addition to unpaid expenses [13].
Privacy, Monitoring, and Data Use Policies
Managing remote worker privacy presents distinct challenges for out-of-state employers with California-based staff. As workplace monitoring increases with remote arrangements, California has enacted robust protections that significantly exceed federal standards.
Employee Notification Requirements for Monitoring
Out-of-state employers must provide clear notification before implementing any monitoring of California remote workers. This notification requirement extends to:
- Electronic communications monitoring, including email and instant messaging
- Computer and internet usage tracking
- Location tracking through GPS or other means
- Productivity monitoring software
Transparency is essential under California law. Employers must create and maintain detailed privacy policies that clearly outline what personal information is collected, how it will be used, and any third parties with whom it may be shared. These policies must be easily accessible to employees, with explicit notification provided before collection begins [16]. Furthermore, employers must obtain informed consent from employees before collecting and processing personal information, with a clear explanation of the purpose behind such collection [16].
Limits on Surveillance in Remote Environments
Remote work environments receive special privacy protections under California law. Critically, monitoring must be:
- Directly related to legitimate business interests
- Limited to business-related activities
- Disabled during private, off-duty periods
California law prohibits surveillance in areas where employees have a reasonable expectation of privacy [17]. For remote workers, this includes prohibitions against monitoring during rest breaks and non-work hours. Yet, many employers struggle with this requirement as approximately 96% of California companies monitor their remote employees in some capacity [18].
California Invasion of Privacy Act Compliance
The California Invasion of Privacy Act (IPA) specifically prohibits eavesdropping or recording confidential communications without permission, including communications occurring in remote work settings [17]. Similarly, California's Electronic Communications Privacy Act (CalECPA) restricts employers from accessing employees' personal electronic communications without consent unless strictly necessary for business purposes [17].
Out-of-state employers must also prepare for additional restrictions on location data collection. Proposed legislation would require express opt-in consent before collecting location data from employees, significantly limiting the ability to track remote workers [19]. Given these evolving requirements, employers should implement monitoring systems with customizable settings that can adapt to California's changing privacy landscape.
Workers’ Compensation and Health & Safety for Remote Teams
Workers' compensation coverage extends beyond traditional office settings into remote work environments, creating unique compliance challenges for companies. Out-of-state employers with remote employees in California must navigate complex jurisdictional requirements regardless of their headquarters location.
Eligibility for Workers' Compensation While Remote
California workers' compensation laws apply to all employees physically working within state boundaries, despite employer location. Remote workers maintain eligibility for benefits when injuries occur "arising out of and in the course of employment" – even within home offices. Importantly, the definition of compensable injuries expands beyond traditional workplace accidents to include repetitive stress injuries and ergonomic conditions commonly associated with improper home office setups.
Yet determining whether an injury is work-related becomes more complicated in remote settings. Courts generally recognize injuries as compensable when they occur during activities benefiting the employer, despite geographic location. However, personal activities during work hours may fall outside coverage parameters.
Safe Workspace Requirements for Out-of-State Employers
Despite physical distance, out-of-state employers retain responsibility for ensuring remote workers maintain safe workspaces. California employers must implement reasonable safety protocols including:
- Regular ergonomic assessments via virtual inspections
- Written home office safety guidelines with acknowledgment forms
- Provision of necessary safety equipment and ergonomic furniture
- Periodic safety training customized for remote environments
Incident Reporting and Documentation Guidelines
Given the challenges of verifying remote workplace injuries, robust documentation becomes essential. Employers should establish clear reporting procedures requiring immediate notification following incidents. Documentation must include detailed injury descriptions, photographs of the accident scene, and witness statements when available.
For telecommuters, maintaining activity logs helps establish work-relatedness of injuries. Likewise, employers should conduct thorough investigations promptly after reported incidents, including virtual inspections of home workspaces to identify potential hazards and implement corrective measures to prevent future occurrences.
Conclusion
Navigating California's Remote Work Landscape
California stands as the nation's leader in employee protections, applying stringent regulations regardless of employer location. Out-of-state companies employing California-based remote workers face substantial compliance responsibilities across multiple legal domains.
Worker classification remains perhaps the most critical compliance area. The ABC test creates a presumption of employee status unless all three restrictive conditions can be proven. Misclassification penalties range from $5,000 to $25,000 per violation, alongside significant back wage liabilities.
Wage and hour requirements likewise demand careful attention. California's $16.50 minimum wage for 2025, daily overtime thresholds, mandatory meal and rest breaks, and comprehensive recordkeeping obligations exceed federal standards significantly. Companies must establish reliable systems for tracking remote work hours, documenting breaks, and calculating appropriate compensation.
Expense reimbursement rules additionally protect remote employees from subsidizing employer operations. Labor Code Section 2802 mandates repayment for necessary business expenses including reasonable percentages of internet and phone services plus home office equipment costs. Failure to reimburse these expenses creates substantial class action liability risks.
Privacy regulations further complicate remote workforce management. California law requires explicit notification before implementing monitoring systems, limits surveillance of personal activities, and protects confidential communications. Employers must balance legitimate oversight needs against increasingly robust privacy protections.
Workers' compensation coverage extends fully into home office environments. Though determining work-relatedness becomes challenging in remote settings, employers retain responsibility for safety protocols, ergonomic assessments, and prompt incident documentation.
These five regulatory areas demand specialized knowledge and proactive compliance strategies. Smart employers will develop California-specific policies addressing each domain while implementing systems to document compliance efforts. Though administrative burdens may seem daunting, they pale compared to potential litigation costs.
Undoubtedly, employing remote workers in California creates unique legal challenges for out-of-state businesses. Companies that invest in understanding these requirements, however, gain access to California's talented workforce while minimizing regulatory exposure. The key lies in recognizing California's distinct approach to worker protection and adjusting business practices accordingly.
Need a Lawyer?
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References
[1] – https://www.labor.ca.gov/employmentstatus/abctest/
[2] – https://www.dir.ca.gov/dlse/faq_minimumwage.htm
[3] – https://www.laborlawpc.com/blog/understanding-californias-workplace-protections-for-remote-workers-what-you-need-to-know-in-2024/
[4] – https://www.dir.ca.gov/dlse/
[5] – https://www.dir.ca.gov/dlse/faq_overtime.htm
[6] – https://calljustice.com/do-remote-workers-get-overtime-pay-in-california/
[7] – https://www.dir.ca.gov/dlse/FAQ_MealPeriods.html
[8] – https://www.ymsllp.com/california-remote-work-laws/
[9] – https://www.adp.com/spark/articles/2021/03/california-meal-and-rest-break-requirements-for-employees-working-remotely.aspx
[10] – https://www.callaborlaw.com/entry/dol-issues-guidance-on-tracking-hours-worked-by-remote-employees
[11] – https://www.fbm.com/publications/navigating-recent-changes-to-california-wage-and-hour-laws-2/
[12] – https://www.rippling.com/blog/california-work-from-home-reimbursement-law
[13] – https://www.shrm.org/topics-tools/employment-law-compliance/california-employers-reimburse-workers-use-personal-cell-phone-internet-plans
[14] – https://www.dwt.com/blogs/employment-labor-and-benefits/2023/07/reimbursing-california-remote-employee-expenses
[15] – https://www.shouselaw.com/ca/blog/labor-code-2802/
[16] – https://www.novianlaw.com/california-remote-employee-laws/
[17] – https://www.toddflaw.com/blog/the-legalities-of-employee-monitoring-and-privacy-in-california-workplaces/
[18] – https://www.shrm.org/topics-tools/employment-law-compliance/shrm-opposes-california-bill-to-restrict-workplace_surveillance
[19] – https://www.fisherphillips.com/en/news-insights/californias-latest-privacy-push.html
