Did you know that California employers aren’t responsible for funding Paid Family Leave (PFL) out of pocket?
California’s PFL program is 100% funded by employee contributions through the state’s State Disability Insurance (SDI) tax. But here’s the surprising part: some payroll providers still don’t explain this to business owners—and worse, they may set up your payroll incorrectly.
Let’s break it down.
What is Paid Family Leave (PFL) in California?
California PFL provides up to 8 weeks of paid, job-protected leave for employees who need to:
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Care for a seriously ill family member
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Bond with a new child
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Support a family member during military deployment
It’s an important benefit—but you don’t have to pay for it.
Here’s the Catch: It’s Funded by Your Employees
In 2025, California’s PFL is funded through the SDI tax, which is:
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1.2% of each employee’s wages
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With a maximum contribution cap, adjusted annually by the state
This means you’re legally allowed to withhold 100% of the cost from your employees’ wages. If you’re not doing that?
You may be covering thousands of dollars in PFL costs that your payroll provider should’ve explained you don’t have to pay.
The Problem with Some Payroll Companies
Too many payroll companies either:
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Skip the proper SDI setup
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Bundle PFL without breaking it out clearly
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Fail to explain what’s legally your responsibility (and what isn’t)
That means you could be unknowingly absorbing employee-paid taxes, reducing your profitability with every payroll run.
Why This Matters (Especially in California)
California is one of the most regulation-heavy states in the country. And the rules around SDI and PFL are no exception.
If your payroll isn’t set up correctly:
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You could be overpaying for benefits you’re not obligated to cover
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You might face compliance issues down the line
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Your employees may not see the correct breakdown on their pay stubs
Baron Payroll Makes It Easy
At Baron Payroll, we do things the right way:
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We correctly separate SDI and PFL deductions
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We clearly show contributions on employee pay stubs
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We ensure every deduction is compliant, accurate, and transparent
And most importantly? We give you the facts—so you can make informed decisions for your business.
Should You Be Withholding PFL in California?
If your payroll company didn’t explain California’s SDI funding rules—or just made the decision without telling you—you could be overpaying.
That’s money that should be staying in your business.
Want to see how much you could be saving?
👉 Use our instant price calculator — no sales call required.
Or visit https://www.baronpayroll.com/itin-service to learn more.
If you found this article helpful, here are some others you might like:
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- Why are my W2 Wages Lower Than my Salary?
- How to Choose the Best Payroll Company for Your Small Business
- The Pros and Cons of Paying Employees with Payroll Paycards
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