Part 1 of 3: Myths, Realities, and US Benchmarks
In more than one phone call with customers, vendors, or other analysts in the HR technology industry, I’ve heard the claim that it’s hard to do business in the state of California.
According to these conversations, the state is riddled with unnecessary compliance, too many hoops to jump through, a mountain of litigation risk, and constant changes to the rules. Business groups frequently cite labor, wage, and climate regulations as part of a broader, burdensome business environment.
So I decided to take a look.
In this opening installment, I outline the context: Is California’s situation truly as dire as they say? Why do so many executives say that California presents challenges for employers, and what does the law actually stipulate? We will distinguish between perception and reality, comparing California to other US states, and later, we’ll explore global standards in the following piece.
Fact vs Fiction
To start, there is a significant kernel of truth behind these claims, especially when compared to the rest of the United States.
California’s 2025 statewide minimum wage is $16.50 per hour for all employers, with higher rates for fast food ($20) and certain healthcare workers. This sits leagues above the federal minimum wage of $7.25. California overtime pay kicks in after eight hours of work in a day and doubles after 12 hours, compared to federal law, which uses the 40-hour workweek as its baseline. Employers also owe a worker an extra hour of pay when they fail to provide required meal or rest breaks.
Worker classification in California also follows the “ABC test,” which presumes a worker is an employee unless the company can prove that the worker is independent, the work isn’t part of its primary business, and the worker operates their own business. If even one isn’t proven, the worker is an employee. This prevents misclassification, ensures proper pay and protections, and stops honest employers from being undercut.
As of 2023, recent climate laws also require large companies to disclose their greenhouse-gas emissions and climate-related financial risks, and employers with 100 or more employees to submit annual pay data to the California Civil Rights Department, detailing pay, demographics, and job categories.
How Does It Compare to the Rest of the US?
Relative to most US states, California clearly sits at the demanding end of the compliance spectrum. But how does it compare to other states?
In 2025, Oxfam America, the international relief and development organization that studies poverty, economic inequality, and injustice, ranked California second overall, after Washington, DC, and just above Oregon and New York. The state ranked second after Oregon (tied with New York) in terms of worker protection. For context, the bottom five states overall were Tennessee, Georgia, Alabama, Mississippi, and North Carolina, which consecutively ranked 46 through 50.
California is also among the few states that have heat standards unique to outdoor workers and specific protections for warehouse employees.
And here lies the core tension: stronger workplace protections also mean more complex compliance operations. For small businesses and multi-state organizations in particular, this means meeting a standard that’s often a higher standard than in other states.
Within the US, California stands out as particularly strict, although it’s not alone in this regard. In Part 2, we’ll broaden our view to include Canada and Europe, then evaluate whether California’s regulations effectively safeguard workers and what implications they have for employers.
Read part 3 here: California Labor Laws and Compliance: Burden, Benchmark, or Competitive Advantage? | Perception, Future Trends, and the Role of HR Tech
Read part 2 here: California Labor Laws and Compliance: Burden, Benchmark, or Competitive Advantage? | Global Context & Real-World Impacts