If you run a business in California and you have even one employee, the answer is yes. Workers compensation insurance is required in California for virtually every employer, and going without it is not a paperwork problem. It is a crime.
I’m Shalom Samya, a licensed commercial insurance broker based in Tarzana. I’ve been placing commercial insurance for more than 15 years, and workers’ comp questions come up in almost every first conversation I have with a business owner.
Most of those questions sound simple: “Do I need it if my only worker is part-time?” “What if I pay people as 1099 contractors?” “I’m the only one in my LLC, am I covered?” The honest answers are more nuanced, and getting them wrong can cost far more than the premium ever would.
This guide walks through who must carry coverage, who can legally be excluded, how the independent contractor rules work, what contractors licensed by the CSLB need to know, the real penalties for operating uninsured, what you have to do after an injury, and what to do if your policy has lapsed.
The Short Answer: Is Workers Compensation Insurance Required in California?
Yes. Under California Labor Code §3700, every employer with one or more employees must carry workers’ compensation insurance or be approved by the Department of Industrial Relations (DIR) to self-insure.
There is no minimum headcount. There is no minimum payroll. There is no “small business” exemption. One employee is enough to trigger the requirement.
That includes part-time employees, seasonal workers and family members who are on your payroll. If you’re paying someone wages to work in your business, the law assumes you need coverage unless a specific exception applies.
Why California Takes This So Seriously
Workers’ comp is a trade-off built into state law. Injured employees get medical care and wage replacement without having to prove the employer was at fault.
In exchange, workers’ comp is generally the exclusive remedy for workplace injuries. That means employees usually can’t sue the employer for a covered injury, although exceptions exist.
When an employer skips coverage, that whole bargain breaks down. The worker has no insurer to pay the claim, and the state has to step in. That’s why the penalties, which I’ll lay out below, are designed to be much more painful than simply buying a policy.
What About Self-Insurance?
Self-insurance is legal, but it requires DIR approval. The DWC’s own guidance cites a net worth of $5 million and annual net income of $500,000 as guidelines.
For the kinds of businesses I usually work with in Los Angeles and the San Fernando Valley, such as contractors, restaurants, retailers, medical offices and professional firms, self-insurance isn’t a realistic path. A policy from a licensed carrier is how almost every small and mid-size employer meets the requirement.
California Workers Compensation Insurance Requirements: Who Must Carry It
The core California workers compensation insurance requirements are easy to state and easy to trip over in practice. Here’s how I explain them to clients.
Any Business With Employees
If you have W-2 employees, you need a workers’ comp policy. That applies whether you’re a corporation, an LLC, a partnership or a sole proprietor.
The legal structure of the business affects whether the owners can be excluded. It doesn’t change the obligation to cover the employees.
Part-Time, Seasonal and Temporary Staff
I hear this one often: “She only works ten hours a week, so she doesn’t count.” She counts.
Part-time and seasonal employees on your payroll are employees for workers’ comp purposes. A retail store that adds holiday help in November, or a landscaping company that hires extra crew in spring, needs those people covered from their first day.
Family Members on Payroll
Paying your son, daughter, spouse or cousin to work in the business? If they’re on payroll, they’re employees under the rule. Family relationships don’t create an automatic exemption for employees.
Some family members who are also owners or officers may be eligible for exclusion, which I cover in the next section. But “they’re family” alone isn’t a legal reason to skip coverage.
Out-of-State Businesses With California Employees
I work with clients in California and 27+ other states, and multi-state employers regularly get caught here. If you have employees working in California, you need coverage that properly addresses California. A policy written for another state doesn’t automatically take care of it.
For a full picture of how coverage, classes and pricing work, start with my page on California workers’ compensation insurance.
Workers Comp Exemption California: Who Can Be Excluded
There’s no general workers comp exemption in California for employers with employees. But certain owners can choose not to cover themselves, and a business with no employees at all may not be required to carry a policy.
The rules depend on your entity type. Here is a summary based on State Fund’s published overview.
| Business type / role |
Default status |
Exclusion rules (general) |
| Sole proprietor with no employees |
Not required to carry coverage |
May buy a policy to cover themselves if they want to, or if a client or contract requires it |
| Sole proprietor with employees |
Must cover employees |
The owner is generally not covered unless they elect coverage for themselves |
| Partnership (general partners) |
Must cover employees |
General partners can elect to be excluded |
| LLC (managing members) |
Must cover employees |
Managing members can elect to be excluded |
| Corporation (officers/directors) |
Officers and directors are generally treated as employees |
Officers/directors owning at least 10% of stock can elect exclusion by written waiver; 1% owners who are direct relatives of a 10% owner may also qualify, with health insurance |
| Sole-shareholder corporation |
Automatically excluded |
Can elect to be covered |
| Professional corporation practitioners |
Generally treated as employees |
Practitioners with health insurance can be excluded |
These are general rules. The exact waiver forms and conditions matter, so confirm the details for your specific situation before you rely on an exclusion.
The Trade-Off of Excluding Yourself
When an owner or officer is excluded, their payroll isn’t included in the premium calculation. For businesses with high-paid owners, that can lower the bill.
The catch is simple: excluded owners have no workers’ comp coverage. If you get hurt on a job site, in the kitchen or loading the truck, your policy won’t pay your medical bills or lost wages.
In my experience, owners who do physical work in the business should think hard before excluding themselves. Your health insurance may not respond the same way to a work injury, and it won’t replace your income.
Workers Comp for Self Employed Owners
If you’re a true sole proprietor with no employees, you generally aren’t required to carry coverage. But workers comp for self employed people is still something I discuss with clients for two reasons.
First, your own protection. A policy that covers you gives you a way to handle medical costs and lost income from a job injury.
Second, your clients. Many general contractors, property managers and larger companies won’t let you on site without a certificate showing workers’ comp. For some licensed trades, as I’ll explain below, the CSLB requires it whether you have employees or not.
Independent Contractors and the ABC Test
The single biggest source of workers’ comp trouble I see is misclassification. A business pays people as 1099 contractors, assumes there’s no workers’ comp obligation, and then finds out the state sees those people as employees.
If you’re asking, “Do I need workers comp for independent contractors in California?” the real question is whether those workers are legally contractors in the first place.
How the ABC Test Works
California uses the ABC test, codified through AB 5 (Labor Code §2775 and following). Under this test, a worker is presumed to be an employee unless the hiring business can show all three of the following:
- A: The worker is free from the business’s control and direction in doing the work, both under the contract and in fact.
- B: The work is outside the usual course of the hiring business.
- C: The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
All three must be met. Prong B is where many businesses fail. If a cleaning company “contracts” with cleaners, or a moving company “contracts” with movers, the work is usually inside the company’s normal course of business.
There are exemptions and special rules for certain occupations and business-to-business relationships. Those rules are detailed and change over time, so I recommend getting employment law advice if your model depends on them.
What Happens When a “Contractor” Is Really an Employee
Misclassified workers are employees under the law. That means the workers’ comp requirement applies to them just like it does to anyone on your W-2 payroll.
If one of them is injured and you had no policy, or your policy didn’t account for them, you face the same uninsured-employer consequences described in the penalties section.
Uninsured Subcontractors and the Audit Problem
Even when you use legitimate subcontractors, there’s a second risk. If you hire a subcontractor who doesn’t carry workers’ comp and one of their workers gets hurt on your project, your business can be treated as the employer.
Your own carrier knows this. At the end of the policy term, the payroll audit will look at what you paid to subcontractors. If a sub couldn’t show proof of coverage, the carrier can add those payments to your payroll and charge premium on them.
The mistake I see most often is a contractor who never collected certificates, gets an audit bill that runs well above the original premium, and has no way to prove the subs were insured.
How to Protect Yourself With Subcontractors
- Collect a current certificate of insurance showing workers’ comp before any sub starts work.
- Check expiration dates and ask for updated certificates when policies renew.
- For licensed contractors, verify their workers’ comp status on the CSLB license lookup.
- Keep the certificates organized by policy period so you can hand them to the auditor.
- If a sub claims an exemption, get that documented in writing and understand whether it actually applies.
Contractors and the CSLB: Special Workers’ Comp Rules
Contractors live under an extra layer of rules. The Contractors State License Board (CSLB) ties your license directly to your workers’ comp status.
Contractors With Employees
If you’re a licensed contractor with employees, you must have a workers’ comp certificate on file with the CSLB. If the coverage lapses and the CSLB isn’t shown valid coverage, your license can be suspended.
A suspended license can stop you from legally doing the work you’re in business to do. It can also create problems collecting payment on jobs performed while suspended.
C-39 Roofers: Required Regardless of Employees
Roofing contractors with a C-39 license must carry workers’ comp whether or not they have employees. A solo roofer can’t use a certificate of exemption to avoid it.
SB 216 Workers Comp Contractors: The 2023 Expansion
SB 216 (2022) extended the same “regardless of employees” requirement to additional classifications starting January 1, 2023:
- C-8 Concrete
- C-20 Warm-Air Heating, Ventilating and Air-Conditioning (HVAC)
- C-22 Asbestos Abatement
- D-49 Tree Service
If you hold one of those classifications, the CSLB expects workers’ comp on file even if you work alone.
SB 1455: All Contractors by 2028
Under current law, SB 1455 (2024) set January 1, 2028 as the date when all licensed contractors must carry workers’ comp regardless of whether they have employees, with narrow exceptions.
That’s a big change for solo contractors in every trade. If you currently file an exemption with the CSLB, I’d start planning for this now rather than scrambling near the deadline. Rules like this can be amended, so check the CSLB’s current guidance as the date approaches.
For a broader look at the policies contractors usually need alongside workers’ comp, see my guide to contractor insurance in California.
| Contractor situation |
Workers’ comp required? (under current law) |
| Any licensed contractor with employees |
Yes, certificate must be on file with CSLB |
| C-39 Roofing, with or without employees |
Yes |
| C-8, C-20, C-22, D-49, with or without employees (SB 216, from Jan 1, 2023) |
Yes |
| Other classifications with no employees |
May file an exemption for now; SB 1455 sets Jan 1, 2028 for all contractors, with narrow exceptions |
Penalty for No Workers Comp in California
This is where I want to be very clear. The penalty for no workers comp in California is not a small fine you pay and move on from. It stacks.
Here’s a summary of the main consequences based on the DWC’s employer guidance and the Labor Code.
| Consequence |
What it means |
| Criminal misdemeanor |
Being illegally uninsured is a misdemeanor, punishable by a fine of not less than $10,000 and/or up to one year in county jail |
| Stop order |
The Labor Commissioner can issue a stop order prohibiting the use of employee labor until coverage is obtained |
| Violating a stop order |
Up to 60 days in jail and/or up to a $10,000 fine |
| Labor Code §3722(a) penalty |
$1,500 per employee employed at the time the stop order is issued |
| Labor Code §3722(b) penalty |
The greater of twice the premium you would have paid during the uninsured period, or $1,500 per employee employed during that period |
| Claim-related penalties |
If an employee is injured while you’re uninsured, additional penalties of up to $10,000 per employee for a compensable claim or $2,000 per employee for a non-compensable one; the DWC notes these can reach up to $100,000 |
| UEBTF reimbursement |
The Uninsured Employers Benefit Trust Fund may pay the injured worker’s benefits, then pursue you for reimbursement |
| Direct lawsuits |
Uninsured employers can be sued directly by the injured employee |
Why the Stop Order Hurts the Most
A stop order means you can’t use employee labor until you get coverage. For a restaurant, that means you can’t open. For a contractor, the job stops. For a retail store, you’re down to whatever the owners can do alone.
The fines are painful. Losing days or weeks of revenue while scrambling to get a policy bound can be worse.
The “Twice the Premium” Math
The §3722(b) penalty is structured so that skipping insurance always costs more than buying it. You don’t just owe what the premium would have been. You owe at least twice that amount, or $1,500 per employee, whichever is greater.
And that’s on top of the cost of actually buying a policy going forward.
When Someone Actually Gets Hurt
The worst-case scenario is an injury during an uninsured period. Now you have the stop order and §3722 penalties, plus claim-related penalties, plus potential reimbursement demands from the UEBTF for whatever it paid the worker, plus exposure to a lawsuit.
A serious back injury or a fall from a ladder can involve surgery, months of lost wages and permanent disability. Those are costs an insurer is built to absorb. Most small businesses aren’t.
I go deeper into the wider fallout in my article on what happens if a business has no insurance.
Not Sure Whether You’re Covered Correctly?
If you’re unsure whether your workers, subs or owners are set up correctly, I’m happy to look at it with you. I offer a free coverage review. Call me at (323) 999-6067 or reach out here, in English, Hebrew or Spanish.
What Workers’ Comp Actually Covers
Understanding what the policy does helps explain why the requirement exists. A standard California workers’ comp policy has two main parts.
Part One: Workers’ Compensation Benefits
This part pays the benefits required by California law for work-related injuries and illnesses:
- Medical care: treatment for the work injury or illness.
- Temporary disability: wage replacement, generally two-thirds of the worker’s average weekly wage, within state minimums and maximums. For injuries in 2026, the temporary total disability range is $264.61 to $1,764.11 per week.
- Permanent disability: payments when an injury leaves lasting impairment.
- Supplemental job displacement benefit: help with retraining when a worker can’t return to their job.
- Death benefits: for dependents of a worker who dies from a work injury or illness.
Part Two: Employer’s Liability
Employer’s liability covers certain lawsuits related to employee injuries that fall outside the workers’ comp system. It’s an important backstop, and contracts often specify minimum limits for it.
Employer Duties After a Workplace Injury
Carrying a policy is step one. California also sets specific requirements for what employers must do before and after an injury happens.
Post the Required Notice
You must display the “Notice to Employees” workers’ comp poster in a conspicuous place where employees can see it. It tells employees who your insurer is and how to report an injury.
Posting violations can bring civil penalties of up to $7,000 per violation. It’s one of the easiest compliance items to get right, so there’s no reason to miss it.
Give New Hires the Workers’ Comp Pamphlet
New employees should receive the pamphlet explaining their workers’ comp rights. Build it into your onboarding packet so it happens every time.
Provide the DWC-1 Claim Form Within One Working Day
When an employee reports a work injury, you must give them the DWC-1 claim form within one working day.
Once the employee returns the completed form, you must forward it to your insurer or claims administrator within one working day of receipt.
These deadlines are short on purpose. Delays can slow the worker’s access to care and create compliance problems for you. I recommend keeping blank DWC-1 forms somewhere managers can find them, and making sure every supervisor knows the one-day rule.
Report Serious Injuries to Cal/OSHA Within 8 Hours
Serious workplace injuries, illnesses and deaths must be reported to Cal/OSHA within 8 hours. This is separate from notifying your insurance carrier.
Many employers don’t realize there are two different reporting tracks. Your carrier handles the claim. Cal/OSHA handles workplace safety enforcement.
Report the Claim to Your Carrier Promptly
Beyond forwarding the DWC-1, get the claim reported to your carrier as soon as possible. Early reporting helps the injured worker get treatment faster, and prompt handling can help keep claim costs down.
Claim costs matter to you, not just the carrier. Once your premium passes a threshold the WCIRB adjusts annually, your claims history feeds into your experience modification, which directly affects future premiums. I explain how that works in my guide to the workers’ comp experience mod in California.
Workers Comp Insurance Lapse: What to Do If Your Policy Cancelled
A workers comp insurance lapse is more common than people think. A payment gets missed, an autopay card expires, a notice goes to an old address, or a business owner decides to “deal with it next month.”
What a Lapse Means Legally
If your policy cancels for non-payment, your business is uninsured from the cancellation date. There’s no grace period built into the law for your employees’ injuries.
Any injury that happens during the gap falls under the uninsured-employer rules described above: penalties, UEBTF reimbursement and possible lawsuits. For contractors, the CSLB can also suspend your license if valid coverage isn’t on file.
Step 1: Confirm the Status Right Away
Call your broker or carrier and find out exactly when the policy cancelled and whether it can be reinstated. Get the answer in writing.
Step 2: Ask About Reinstatement
Reinstatement is at the carrier’s discretion. Some carriers will reinstate if payment is made quickly; others won’t, or will reinstate with a gap in coverage. Don’t assume paying the late bill fixes everything.
Step 3: If Reinstatement Isn’t Available, Replace Coverage Immediately
If the carrier won’t reinstate, you need a new policy as fast as possible. A lapse for non-payment can make some carriers hesitant, but options usually exist.
State Compensation Insurance Fund acts as the insurer of last resort in California. California doesn’t have a separate “assigned risk pool” like many other states, so businesses that struggle in the standard market typically end up with State Fund or with specialty carriers that write harder-to-place risks. I can place business with State Fund and with private carriers, and I’ll look at both.
If your business is in a higher-hazard class or has a tough claims history, my article on high-risk workers’ compensation in California goes into the options in more detail.
Step 4: Consider What Happened During the Gap
If anyone was injured during the uninsured period, talk to an attorney. That situation has legal consequences that go beyond buying a new policy.
Step 5: Fix the Cause So It Doesn’t Happen Again
In my experience, most lapses come down to cash flow and billing. Pay-as-you-go workers’ comp can help here. The premium is calculated from actual payroll each pay cycle through your payroll provider, which usually means a smaller deposit and fewer surprises at audit.
It’s not the right fit for every business, but for employers with seasonal swings or tight cash flow, it can make staying continuously insured much easier.
What About PEOs?
Some businesses meet the requirement through a Professional Employer Organization (PEO). In a co-employment arrangement, the PEO can cover your employees under its master workers’ comp policy.
That can be convenient, since payroll, HR and workers’ comp come bundled together. The trade-offs are worth understanding before you sign:
- The cost is bundled, so it can be harder to see what you’re paying for workers’ comp specifically.
- You typically have less control over the carrier, the claims handling and the policy terms.
- If you leave the PEO, you need to know what happens to your coverage and to your loss history, and how you’ll replace coverage without a gap.
PEOs work well for some employers. I just want clients to go in with eyes open and a plan for the exit.
Workers Comp Requirements California Employers Often Miss
Most business owners know the basic rule. The problems come from the details. Here are the workers comp requirements California employers overlook most often.
Wrong Class Codes
Premium is based on payroll per $100 by WCIRB class code. If your employees are placed in the wrong class, you may be overpaying, or underpaying and headed for a large audit bill.
For context, the Insurance Commissioner adopted an average advisory pure premium rate of $1.65 per $100 of payroll effective September 1, 2026. That’s an average of expected loss costs only; carriers file their own rates and add expenses, and actual rates vary enormously by class. If you want to understand pricing, my article on how much workers’ comp costs in California breaks it down.
Underestimating Payroll
Workers’ comp policies are priced on estimated payroll and then audited at the end of the term. If your payroll grows and you don’t update the estimate, the audit produces an additional premium bill.
If you’re growing, tell your broker mid-term. It’s much easier to budget for a small increase along the way than a big bill at audit.
Forgetting New Locations or States
Opening a second location in Pasadena or Orange County usually isn’t a problem. Sending employees to work in another state can be. Multi-state operations need to be set up correctly on the policy.
Treating Owners’ Status Casually
Whether an owner is included or excluded should be a deliberate decision, documented with the proper forms. Confusion here tends to surface as surprises at audit and at claim time.
Assuming “1099” Means No Coverage
As covered above, the ABC test decides employee status, not the tax form. If your workers wouldn’t pass the test, they need coverage.
A Workers’ Comp Compliance Checklist for California Employers
Here’s a practical checklist I’d walk through with any California business owner. It’s not legal advice, but it covers the items that cause the most trouble.
- Confirm who your employees are. Include part-time, seasonal and family members on payroll. Review anyone paid as a contractor against the ABC test.
- Have an active workers’ comp policy from a licensed carrier, or DIR approval to self-insure.
- Decide owner inclusion or exclusion deliberately, and file the correct waivers if you exclude eligible owners or officers.
- Check your class codes so each employee’s work is classified correctly.
- Keep payroll estimates realistic and update your broker when payroll changes significantly.
- Collect certificates of insurance from every subcontractor, and keep them organized for audit.
- Contractors: keep your certificate on file with the CSLB, know whether your classification requires coverage regardless of employees, and plan for the January 1, 2028 rule under SB 1455.
- Post the “Notice to Employees” poster in a conspicuous place.
- Give new hires the workers’ comp pamphlet.
- Keep DWC-1 forms on hand and train supervisors on the one-working-day rule.
- Know the Cal/OSHA 8-hour reporting rule for serious injuries, illnesses and deaths.
- Protect against lapse with autopay you actually monitor, correct mailing addresses, and pay-as-you-go billing if it fits your cash flow.
- Review the policy at every renewal, including your experience mod if you have one.
How Workers’ Comp Fits Into the Rest of Your Coverage
Workers’ comp is the one policy California requires for employers, but it’s not the only one most businesses need. General liability, commercial auto and employment practices liability often come up in the same conversation, especially when a client contract spells out requirements.
If you’re putting together a full program, my guide on what insurance your business needs is a good starting point. For small employers specifically, I also cover the practical side in workers’ comp insurance for small businesses in California.
Why Work With a Broker on Workers’ Comp
You can buy workers’ comp directly from some carriers. The advantage of working with an independent broker is that someone is looking at the whole picture: class codes, owner elections, subcontractor exposure, payment options and which carriers actually want your type of business.
I work with multiple carriers and shop the market for my clients. I hold a California Property & Casualty license (#OK30674), I’ve been a licensed producer since 2014, and I’m a Partner and Commercial Insurance Broker at Zolo Insurance Services.
Many of my client relationships go back eight years or more. That’s because the job doesn’t end when the policy is bound. It continues through audits, claims and renewals, which is exactly where workers’ comp gets complicated.
If you want to learn more about how I approach coverage, visit my workers comp insurance in California page.
Frequently Asked Questions
Is workers compensation insurance required in California for one employee?
Yes. California Labor Code §3700 requires every employer with one or more employees to carry workers’ comp or be approved to self-insure. Part-time, seasonal and family employees on payroll count.
Do I need workers’ comp if I’m self-employed with no employees?
Generally no, a sole proprietor with no employees isn’t required to carry it. Exceptions apply to certain licensed contractors, such as C-39 roofers and the SB 216 classifications, and under current law all licensed contractors will need it starting January 1, 2028. Many clients also require it by contract.
Do I need workers comp for independent contractors in California?
If they are true independent contractors under the ABC test, they aren’t your employees. But if they fail the test, they are employees and must be covered. You should also collect certificates from subcontractors, because uninsured subs can be charged to your policy at audit.
What is the penalty for not having workers’ comp in California?
It’s a misdemeanor punishable by a fine of at least $10,000 and/or up to one year in county jail. The Labor Commissioner can also issue a stop order and assess §3722 penalties, and additional penalties, UEBTF reimbursement and lawsuits can follow if an employee is injured.
Can LLC owners exclude themselves from workers’ comp?
Managing members of an LLC can elect to be excluded. Excluding yourself lowers premium because your payroll isn’t included, but it also means you have no workers’ comp coverage for your own injuries.
What happens if my workers’ comp policy lapses?
Your business is uninsured from the cancellation date, and any injury during the gap falls under uninsured-employer rules. Contact your broker immediately, ask about reinstatement, and replace coverage right away if the carrier won’t reinstate.
How quickly do I have to give an injured employee a claim form?
Within one working day after the injury is reported. Once the employee returns the completed DWC-1, you must forward it to your insurer within one working day of receipt.
Does California have an assigned risk pool for workers’ comp?
Not in the way many other states do. State Compensation Insurance Fund serves as the insurer of last resort, and specialty carriers write many higher-risk classes. A broker can quote both.
Get Your Workers’ Comp Set Up Correctly
The requirement is simple: if you have employees in California, you need workers’ comp. Getting it set up right, with the correct classes, owner elections, subcontractor controls and a billing plan that won’t lapse, is where an experienced broker earns their keep.
I’ll review your current policy or help you get coverage in place, at no cost for the review. Call me at (323) 999-6067 or contact me here. My office is at 18757 Burbank Blvd, Suite 105, in Tarzana, and I work with businesses across Los Angeles, California and 27+ other states in English, Hebrew and Spanish.
