CalSavers Penalties: What a California Employer Faces
An employer that offers a tax-qualified retirement plan, such as a 401(k), a SEP, or a SIMPLE plan, is exempt from CalSavers, and that exemption often ends a penalty dispute. Every other eligible California employer with at least one employee had to set up a payroll deposit arrangement by December 31, 2025. An employer that still hasn’t, without good cause, faces a penalty per eligible employee after a final notice, and the penalty can be appealed.
Who has to offer CalSavers?
Almost every private employer in California that doesn’t offer its own plan. Government Code section 100032(e) says that “By December 31, 2025, eligible employers with one or more eligible employees and that do not offer a retirement savings program pursuant to subdivision (h) shall have a payroll deposit retirement savings arrangement to allow employee participation in the program.” Larger employers had earlier deadlines under subdivisions (b) through (d), and the board may extend the time limits under subdivision (f).
The definition of an eligible employer is broad. Under section 100000(d)(1), it covers a business “whether for profit or not for profit,” and leaves out sole proprietors and other businesses “that do not employ any individuals other than the owners of the business,” along with government employers. Nonprofits are in. A company whose only workers are its owners is out.
Some employees don’t count. Section 100000(c)(2) excludes employees covered by the federal Railway Labor Act and any employee on whose behalf the employer contributes to a Taft-Hartley pension trust fund. A union employer whose whole workforce is covered by a multiemployer plan should check whether it has any eligible employees at all.
When is an employer exempt?
When it already offers a qualified plan. Section 100032(h)(1) exempts an employer that provides “an employer-sponsored retirement plan, such as a defined benefit plan or a 401(k), Simplified Employee Pension (SEP) plan, or Savings Incentive Match Plan for Employees (SIMPLE) plan, or that offers an automatic enrollment payroll deduction IRA,” if the plan qualifies for favorable federal tax treatment. Subdivision (h)(2) lets an employer set up a qualified plan “at all times” instead of using CalSavers.
The exemption doesn’t apply itself. An employer with a 401(k) that never told the program about it can still receive notices, and the cleanest response is to claim the exemption through the program and keep proof of the plan. The plan documents and the date the plan took effect are the core evidence.
How do the penalties work?
They come in steps, and each one follows a notice. Section 100033(b)(2) says an eligible employer that, “without good cause, fails to allow its eligible employees to participate” after the board “serves a final notice of penalty application, shall be subject to a penalty of two hundred fifty dollars ($250) per eligible employee and an additional penalty of five hundred dollars ($500) per eligible employee if noncompliance continues.”
The Franchise Tax Board collects. Under Revenue and Taxation Code section 19287(a), the FTB issues a first notice of the penalty “after the CalSavers Retirement Savings Board informs the Franchise Tax Board of the eligible employer’s noncompliance.” If noncompliance continues, subdivision (b) provides for a second notice, which is where the additional amount comes in.
That structure gives an employer several chances to fix the problem before any penalty applies. Most penalties land on businesses that ignored the mail, not on businesses that disputed it.
| Stage | Source | What it means for the employer |
|---|---|---|
| Final notice of penalty application | Gov. Code § 100033(b)(2), (c) | The last chance to register or claim the exemption before a penalty |
| First FTB penalty notice | Rev. & Tax. Code § 19287(a) | $250 per eligible employee, if noncompliance lacks good cause |
| Second FTB penalty notice | Rev. & Tax. Code § 19287(b), (c) | An additional $500 per eligible employee if noncompliance continues |
| Appeal | Rev. & Tax. Code § 19288 | Written appeal to the FTB, which decides it and notifies both sides |
Can an employer appeal a CalSavers penalty?
Yes, in writing to the FTB. Section 100033(d)(1) says an eligible employer “may appeal any penalty imposed under this section in writing to the Franchise Tax Board.” Under Revenue and Taxation Code section 19288, the appeal runs from the first penalty notice, the FTB hears and decides it, and the FTB notifies the employer and the board of its decision in writing. The deadline is short and is measured from that first notice, so the date it arrived matters.
The strongest appeals rest on facts the statute makes relevant. The employer wasn’t an eligible employer, it had a qualified plan, it had no eligible employees, or it had good cause for the delay. The penalty is per eligible employee, so the headcount the board used is worth checking too.
Can CalSavers create other liability for the employer?
Less than most owners fear, if the company stays in its lane. Section 100034(a) says employers “shall not have any liability for an employee’s decision to participate in, or opt out of, the program, or for the investment decisions of employees.” Under subdivision (b), employers “shall not be a fiduciary, or considered to be a fiduciary, over the trust or the program.”
The risk sits in the payroll department and in what managers say. The board’s regulation, 10 CCR § 10003, requires the employer to remit withheld contributions “as soon as administratively practicable, not to exceed seven business days from the date of deduction.” The same regulation bars participating employers from acting to “Require, endorse, encourage, prohibit, restrict, or discourage employee participation.” A deduction that’s taken but never sent, or a supervisor who tells workers to opt out, is the kind of fact that turns a compliance item into an employee complaint.
What should an employer do after a CalSavers notice arrives?
- Keep every notice from the board and the FTB with the date each one arrived, along with the payroll records showing who was employed and any records of a retirement plan the company offers.
- Calendar the deadline stated on the notice and the appeal deadline, and check whether a payroll provider was supposed to handle registration or remittances.
- Identify who in the company handled the notices and payroll deductions, and make sure no manager is encouraging or discouraging employee participation.
- Gather the documents the response depends on: the qualified plan documents and effective date, the headcount for the relevant period, and any record of deductions taken and when they were sent.
- Talk to a lawyer before filing an appeal, paying a penalty, or responding to an employee who says contributions went missing.
A CalSavers notice is usually a compliance problem, but missing contributions can become a wage dispute. The firm’s page on employment compliance defense for California businesses describes its approach to those matters.
CalSavers questions from California employers
Do we have to contribute our own money to employee accounts?
No. CalSavers is funded by employee payroll deductions. Under section 100032(j), a participating employee contributes 3 percent of salary or wages unless the employee picks a different rate. The employer’s job is to register, send employee information, take the deductions, and remit them on time. The cost is administrative, and an employer that prefers its own plan can offer one instead.
Is there a good-cause defense to the penalty?
The statute doesn’t define it. Section 100033(b)(2) applies the penalty only to an employer that fails to comply “without good cause,” which leaves room for facts such as notices sent to an old address, a payroll provider’s failure, or a recent change in ownership. An employer relying on good cause should document what happened and when, and should comply right away so the explanation covers a closed period.
Should managers tell employees to sign up or opt out?
Neither. Under section 100032(g)(1), each eligible employee is enrolled unless the employee elects not to participate, and the board’s regulation bars employers from encouraging or discouraging participation. The safer practice is to hand out the program’s materials, answer logistics questions, and send investment or opt-out questions to CalSavers. A short script for supervisors helps keep that line clear.
Can an employee sue us over CalSavers?
The statute limits that exposure. Section 100034(d) says an employer “shall not have civil liability, and no cause of action shall arise against an employer,” for acting under the board’s regulations on employer roles. The protection fits an employer that follows those rules. An employer that withheld deductions and kept them is in a different position.
If your company has received a CalSavers penalty notice
If your company has received a CalSavers penalty notice, the exemption records and the headcount the board used usually decide whether the penalty holds up. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving retirement payroll deductions and state compliance penalties. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Government Code sections 100000, 100032, 100033, and 100034, and Revenue and Taxation Code sections 19287 and 19288. The regulation is California Code of Regulations, title 10, section 10003.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.