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California State Disability Insurance Changes: Removal of Wage Ceiling Set to Impact Employers and Employees in 2024

As of the upcoming year 2024, significant changes are set to transform the landscape of CA’s State Disability Insurance (SDI) program, directly impacting employers and employees. The most noteworthy change in 2024 is the removal of the wage ceiling that capped the amount of income subject to SDI taxation.

The California SDI program, administered by the Employment Development Department (EDD), provides temporary financial assistance to eligible workers who need time off work. SDI provides short-term disability and paid family leave wage replacement and is funded through a 0.9% tax withholding on employee wages in CA (check your paycheck). Today, wages are taxed up to a maximum of $153,164 which equates to a maximum withholding of $1,378.48 per year ($153,164 x 0.9%).

As part of CA SB 951, starting in 2024, the wage ceiling will be eliminated and all California wages will be subject to the 0.9% tax. Employees earning less than $153,164 will not see a change in their SDI tax withholding, but employees earning more than $153,164 will see a greater amount withheld.

Here are a few examples:

California Wages SDI Taxes Withheld: 2023 SDI Taxes Withheld: 2024
$75,000 $675 ($75,000*0.9%) $675 ($75,000*0.9%)
$200,000 $1,378.48 ($153,164*0.9%) $1,800 ($200,000*0.9%)
$500,000 $1,378.48 ($153,164*0.9%) $4,500 ($500,000*0.9%)

Good news – starting in 2025 many workers are anticipated to receive higher benefits from SDI.
While exact figures are not yet available, EDD has stated the intention is to provide those who earn 70% or less than the state’s average wage with 90% of their regular wages, an increase from 70% which low-wage earners are eligible to receive under the current program. Workers earning more than 70% of the state average should expect to receive up to 70% of average weekly wage starting in 2025. Maximum weekly benefits are not yet finalized for 2024 or 2025, but those who will pay higher taxes due to the wage cap coming off are likely to see very little increase to their maximum weekly benefit from SDI in the next two years. It is expected that the increase to the maximum weekly benefits will be no more than the normal inflation adjustments that typically come each year.

Employers may want to proactively plan ahead in advance of the change:

  • Employers will need to ensure their payroll system is updated for 2024 SDI deductions
  • HR departments may want to proactively communicate these changes to employees
  • Provide employees with resources and contacts for inquiries regarding the updated program

As an alternative to participating in CA SDI, employers can apply to the EDD for approval of a state-approved voluntary short-term disability and family leave plan. The bar is high to administer an alternative option – in order to comply, companies must meet the following requirements:

  • Cannot cost employees more than SDI
  • Provide all the same benefits as SDI plus at least one that is better
  • Must be updated to match any increase in benefits SDI implements
  • Obtain written approval from the majority of employees eligible for coverage

There are a number of employer considerations for companies interested in a voluntary plan and OneDigital’s strategists are ready to partner with you on your approach to benefits and workplace solutions. Learn more about the hidden value of ancillary benefits here.