By the Awan Insurance Team · Reviewed by Shahbaz Awan, Licensed California Insurance Agent (CA Lic #0H95098)
Workers' compensation in California is required the moment you hire your first employee. Here's who it covers, who can opt out, what it costs you to go without, and how the premium is built.
Workers' compensation in California is required for every employer with even one employee, including part-time staff, under Labor Code section 3700. You meet the requirement by buying a policy from an insurer licensed to write it in California or by getting a state certificate to self-insure. Going without can bring an immediate stop order, a penalty of at least $1,500 per employee, misdemeanor charges and a direct lawsuit from any injured worker. Premiums are set by job classification, payroll and your claims history.
Maybe you just hired your first helper. Maybe it's a part-timer, or your nephew for the summer, and someone at the supply house asked whether you've got workers' comp. If your stomach dropped a little, you're in good company. The rule is simpler than it sounds, the penalties are steeper than most expect, and getting it right is usually a short conversation.
Who Has to Carry Workers' Comp in California?
If you have even one employee in California — full-time, part-time or seasonal — you must carry workers' compensation insurance or be approved by the state to self-insure.
That comes straight from the regulator. The Department of Industrial Relations says California employers are required to have workers' compensation insurance "even if they have only one employee," and Labor Code section 3700 applies the rule to every employer except the state itself. Source: California DIR, Division of Workers' Compensation → Source: Labor Code §3700 →
The law defines an employee broadly — anyone working for you under a contract of hire or apprenticeship, and it expressly includes minors. It doesn't carve out part-time staff; the only hours-based exclusion covers certain household workers hired by a homeowner. Source: Labor Code §3352(a)(8) →
The family exclusion in Labor Code section 3352 is narrow — it covers household workers employed by a parent, spouse or child. Your daughter running the register or your brother-in-law on the jobsite is generally treated as an employee. Talk to us before you assume a relative is exempt. Source: Labor Code §3352 →
Can Owners, Officers or Contractors Be Left Off the Policy?
Some owners can exclude themselves with a signed waiver, but independent contractors are outside the system only if they genuinely pass California's ABC test.
Here's how the main groups shake out under Labor Code sections 3351 and 3352. Waivers are signed under penalty of perjury, take effect when the insurer accepts them, and last until withdrawn in writing. Source: Labor Code §3352 →
| Who | Covered by default? | Can they opt out? |
|---|---|---|
| Employees — including part-time, minors and family in the business | Yes | No |
| Corporate officers and directors paid for actual service | Yes | By waiver if they own at least 10% of the stock (or 1% with a close relative owning 10% and health coverage). A sole shareholder is excluded unless coverage is elected. |
| Working LLC members and partners receiving wages | Yes | General partners and managing members may waive in writing. |
| Owners of a professional corporation who practice in it | Yes | Yes, by waiver stating they have health coverage. |
| Genuine independent contractors | No | Only if all three ABC test conditions are met. |
The contractor line is where small businesses get hurt. Under AB 5, a worker is an employee unless the hiring business can show all three of these. Source: California Labor & Workforce Development Agency →
- A — Free from your control. The worker is free from your control and direction in doing the work, both on paper and in fact.
- B — Outside your usual business. The work is outside the usual course of what your business does.
- C — An independent business. The worker is customarily engaged in an independently established trade or business of the same kind.
Since July 1, 2020, Labor Code section 3351 counts people treated as employees under that test as employees for workers' comp. If your "1099 helper" fails the test, you're an uninsured employer for that person. Source: Labor Code §3351 →
How Do You Get Workers' Comp Coverage?
Most employers buy a policy from an insurance company licensed to write workers' compensation in California; the only alternative is a self-insurance certificate the state grants to employers that prove they can pay claims.
Labor Code section 3700 lists those two routes for private employers. Self-insurance requires a certificate of consent from the Director of Industrial Relations, who must be satisfied you can pay any compensation due. Source: Labor Code §3700 →
California also has the State Compensation Insurance Fund (State Fund). It was created by statute in 1914, runs as a nonprofit enterprise meant to be self-supporting, and serves as the workers' compensation insurer of last resort in the private market while being directed to stay fairly competitive with other insurers. Source: California Senate Committee on Labor and Industrial Relations, SB 1451 analysis (2016) →
Where we come in: Farmers is our primary carrier, and the Kraft Lake brokerage reaches a wider panel of commercial markets. Appetite varies by class of work, so we match your business to a market that wants that risk.
Workers' comp is one piece of a business's coverage. Our business insurance page shows how it sits alongside general liability, a BOP and commercial auto.
What Happens If You Don't Have Workers' Comp?
Going without coverage can shut down your work the day the state finds out, then add per-employee penalties, possible criminal charges and an open lawsuit from any injured worker.
Most uninsured owners simply didn't know the rule applied to a two-person shop. But the consequences stack quickly, and none require an injury first.
| Consequence | What the law says |
|---|---|
| Stop order Immediate | The state orders you to stop using employee labor until you comply. It takes effect when served, and affected employees must be paid for lost time, up to 10 days (§3710.1). |
| Penalties after a claim | $2,000 per employee if an uninsured claim is found not compensable, $10,000 per employee if it is compensable. Section 3722 penalties are capped at $100,000, except the twice-the-premium penalty (§3722). |
| Ignoring a stop order Misdemeanor | Up to 60 days in county jail, a fine up to $10,000, or both (§3710.2). |
| Failing to secure coverage Misdemeanor | Up to one year in county jail and a fine of up to double the missed premium, never less than $10,000; a repeat offense means triple the premium, at least $50,000 (§3700.5). |
| Lawsuit from the worker | An injured employee can sue you directly, the injury is presumed to be your negligence, and you can't argue the worker was partly at fault (§3706, §3708). |
Source: Labor Code §3710.1 → Source: Labor Code §3710.2 → Source: Labor Code §3700.5 → Source: Labor Code §3706 → Source: Labor Code §3708 →
The tougher penalty in section 3722(b) turns on being uninsured for more than one week. A policy that lapses between renewals isn't a harmless paperwork hiccup — set renewals on auto-pay and put the expiration date on your calendar.
What Does Workers' Comp Pay When Someone Gets Hurt?
Workers' comp pays for an injured employee's medical care and part of their lost wages, plus benefits for lasting disability, getting back to work and, in the worst case, the family left behind.
DIR lists the basic benefits a California policy provides when an employee is hurt or made sick by work. Source: California DIR, Division of Workers' Compensation →
Medical care
Treatment for the work injury or illness, often through the claims administrator's medical provider network.
Temporary disability
Partial wage replacement while the employee can't work during recovery.
Permanent disability
Payments when an injury leaves a lasting effect on the ability to work.
Job displacement
A supplemental benefit toward retraining when an injured worker can't return to the old job.
Return-to-work supplement
An added state payment for eligible workers with a permanent disability.
Death benefits
Support for the dependents of a worker who dies from a work injury or illness.
Comp protects the business too: without it, section 3706 lets an injured employee sue you "as if this division did not apply." Don't count on your personal policies to backstop that: as our guide to personal umbrella insurance explains, umbrella and homeowners forms generally step back from business activity.
How Are Workers' Comp Premiums Calculated?
Your premium starts with the classification code for each kind of work your people do, applied as a rate per $100 of the payroll in that class, then adjusted for your own claims history.
The Workers' Compensation Insurance Rating Bureau (WCIRB) maintains the Standard Classification System that assigns your operations to class codes, and it publishes advisory pure premium rates — expected claim costs before an insurer adds its expenses. Source: WCIRB → Once a business is large enough to meet WCIRB's eligibility threshold, which is adjusted every year, the bureau calculates an experience modification from the employer's payroll and claims over the experience period. A clean record pulls the mod down; a run of claims pushes it up. Source: WCIRB, Experience Rating Eligibility →
Because the math runs on class codes and payroll, get these right before you quote:
- Payroll split by type of work. Office payroll and field payroll usually fall in very different classes. Lumping them together can overstate the premium.
- An honest payroll estimate. The premium is built on payroll, so a low guess today can come back as an adjustment later. Ask how your policy handles the year-end payroll audit.
- Owner decisions made up front. Know which officers or members are included or waived before the policy starts.
- Certificates from your subs. Ask your insurer how it treats uninsured subcontractors at audit — keeping their certificates on file avoids surprises.
What Do California Contractors Need to Know?
Licensed contractors face stricter rules: roofing, concrete, HVAC, asbestos abatement and tree service licensees must carry workers' comp even with no employees, and every licensee will need it by January 1, 2028.
Most contractors with no employees can currently file an exemption with the Contractors State License Board. That changes for everyone on January 1, 2028 — SB 1455 pushed the all-licensee requirement back from January 1, 2026. Five classifications already can't claim the exemption: C-39 Roofing, C-8 Concrete, C-20 HVAC, C-22 Asbestos Abatement, C-49 Tree and Palm and D-49 Tree Service. Source: Contractors State License Board → DIR confirms the roofing rule: a roofer with no employees is still required to carry workers' compensation. Source: California DIR →
Watch this space. Under SB 291 (2025), lawmakers directed CSLB to design a process to verify which licensees without employees are eligible for an exemption, and the board's March 2026 report confirms that current law still requires every licensee to have coverage by January 1, 2028. Source: CSLB, Senate Bill 291 Report →
Planning to hire your first helper before 2028? Set up the policy before the first payroll, not after. Our complete guide to business insurance covers the rest of what a trade needs.
What Notices Do You Owe Your Employees?
California requires three things in writing: a posted notice naming your carrier, a notice for every new hire, and a claim form within one working day of learning about a work injury.
- The posted notice. Keep the "Notice to Employees" poster up in a conspicuous spot employees use during the workday, in English and Spanish where Spanish-speaking employees work. It names your carrier and who handles claims. Failing to keep it posted is a misdemeanor and prima facie evidence that you're uninsured. Source: Labor Code §3550 → Source: 8 CCR §9881 →
- The time-of-hire notice. Give each new employee written notice of their workers' comp rights when hired or by the end of the first pay period. DWC updated its free version in April 2024. Source: Labor Code §3551 → Source: DIR →
- The claim form. Within one working day of learning of an injury that causes lost time beyond the shift or needs more than first aid, give the employee a claim form and a notice of potential eligibility for benefits. Source: Labor Code §5401 →
Put all of this on the same yearly checklist as your renewal — the review we describe in our article on how often to re-shop your insurance.
The Bottom Line
Workers' compensation in California isn't optional and it doesn't scale down for small businesses: one employee is enough. The good news is that the requirement is clear, the paperwork is manageable, and the cost is built from things you control — accurate class codes, honest payroll and a safe workplace.
About to hire, unsure about your 1099 help, or watching the 2028 contractor deadline? Tell us what your people do and roughly what you pay them, and our team will match you to a market that fits.
Related Questions
Do I need workers' comp if my only employee works part-time?
Yes. California's requirement applies with even one employee, and the Labor Code's definition of an employee doesn't exclude part-time staff working in your business. The only hours-based exclusion applies to certain household workers hired by a homeowner. A Saturday-only helper is covered like a full-time employee.
Can I be penalized for not having workers' comp even if nobody got hurt?
Yes. The state can issue a stop order barring you from using employee labor until you get coverage, plus a $1,500 penalty per employee under Labor Code section 3722. Failing to secure coverage is also a misdemeanor under section 3700.5. An injury only adds more penalties and lawsuit exposure.
Do I need workers' comp for workers I pay on a 1099?
Only if they're really employees under California's ABC test. The worker must be free from your control, doing work outside your usual business, and running an independent business of the same kind. If any part fails, California treats them as an employee, and you need coverage for them regardless of the 1099.
Can an LLC managing member exclude themselves from workers' comp in California?
Often, yes. Under Labor Code section 3352, a general partner or managing member of an LLC can sign a written waiver under penalty of perjury to exclude themselves. The waiver takes effect when the insurance company receives and accepts it. No owner can waive coverage for employees.
Does a California contractor with no employees need workers' comp?
It depends on the license. C-39 Roofing, C-8 Concrete, C-20 HVAC, C-22 Asbestos Abatement, C-49 Tree and Palm and D-49 Tree Service licensees must carry it even with no employees. Most other licensees without employees can file an exemption with CSLB for now, but under current law every licensee needs coverage by January 1, 2028.
Last reviewed October 2026 by Shahbaz Awan, Licensed California Insurance Agent (CA Lic #0H95098). Statutory points cited from the California Labor Code (sections 3351, 3352, 3550, 3551, 3700, 3700.5, 3706, 3708, 3710.1, 3710.2, 3722 and 5401), the Department of Industrial Relations, the Contractors State License Board and the California Department of Insurance, checked October 2026. Coverage descriptions are general; eligibility, classifications and pricing vary by carrier and class of business, and coverage is subject to underwriting and the terms of the policy issued. This guide does not quote prices or rank insurance companies, and is not legal advice or advice about your specific policy.