If you pay more than $100 in any quarter of the calendar year to one or more employees, then you are considered to be an employer. Part of your responsibility as an employer in California is to pay the unemployment insurance tax.
You pay unemployment insurance tax for each person employed in your business. The tax ensures that if the person is laid off or loses the job, he or she will receive some benefit from the state for a limited time (as of 2007 in California, the weekly amount received is a maximum of $450). In California, an employer pays 3.4% of up to $7000 in wages for each new employee for the first 3 years. The rate for more experienced employees varies.
Note that if you are self-employed and your business fails, you will not qualify for unemployment benefits.