Yes. Workers’ compensation insurance is required in California for nearly every employer, starting with the first employee on payroll. Labor Code Section 3700 requires you to secure benefits through an insurance policy, a self-insurance certificate, or, for public entities, a public self-insurance program.1California Legislative Information. California Labor Code Section 3700 The system is no-fault: an injured worker collects benefits without proving the employer did anything wrong, and in exchange the employer is generally shielded from personal-injury lawsuits. Skipping coverage is a criminal offense, not a paperwork problem.
Who Must Carry Coverage
The rule is broad and the size threshold is small. One employee triggers the requirement. Full-time, part-time, and temporary workers all count, and industry does not matter.2California Department of Industrial Relations. DWC Answers to Frequently Asked Questions About Workers’ Compensation for Employers Family members on payroll count too. A spouse, parent, or child who draws wages from your business is generally treated as an employee who needs coverage.3CA.gov. FAQ – Workers’ Compensation Insurance
California law also presumes that anyone performing services for a business is an employee unless a specific exclusion applies.4Justia. California Labor Code – Article 2 Employees That presumption is why labeling someone an “independent contractor” on paper does not remove your obligation. Misclassification just piles another violation on top of the workers’ comp one.
Licensed Contractors Who Need Coverage With No Employees
A handful of contractor classifications must carry workers’ compensation insurance even if they work alone. Roofing (C-39), concrete (C-8), warm-air HVAC (C-20), asbestos abatement (C-22), and tree service (C-61/D-49) contractors all fall under this rule, which comes from Business and Professions Code Section 7125. Holders of these licenses cannot file a workers’ comp exemption with the Contractors State License Board.5CSLB. Workers’ Compensation Requirements
Who Falls Outside the Requirement
The exemptions are narrow, and getting one wrong is one of the fastest ways to end up with penalties.
Sole Proprietors, Partners, and Corporate Officers
A sole proprietor with no employees is not required to carry coverage for themselves. A partnership where the only workers are the partners is in the same position. Corporate officers who are the sole shareholders of the corporation can elect out of coverage.3CA.gov. FAQ – Workers’ Compensation Insurance Hire one additional person, though, and you need a policy that covers that worker. Your personal exemption doesn’t stretch to anyone else.
The ABC Test for Independent Contractors
Hiring someone as an independent contractor doesn’t automatically remove your obligation. Under Assembly Bill 5, a worker is presumed to be an employee unless the hiring business can prove all three of the following:
- The worker is free from the hiring business’s control over how and when the work gets done, in practice and not just on paper.
- The work performed is outside the usual course of the hiring business’s operations.
- The worker is engaged in an independently established trade, occupation, or business of the same kind as the work performed.
Fail any prong and the worker is your employee, which means you owe them workers’ comp coverage.6Franchise Tax Board. Worker Classification and AB 5 Frequently Asked Questions A signed contractor agreement, on its own, has never been a successful defense.
Certain Household Workers
A narrow exemption applies to domestic employees — people working in a private home on tasks like cleaning, childcare, or home maintenance. If a household worker’s employment in the 90 days before an injury totaled fewer than 52 hours, or if wages earned in that period were $100 or less, that worker is excluded from the employer’s workers’ comp obligation.7California Legislative Information. California Labor Code Section 3352 Once those thresholds are crossed, coverage is required.
What It Costs If You Don’t Carry It
California treats a coverage failure as a serious offense. The consequences are criminal, civil, and financial, and they run at the same time.
Criminal Penalties
Operating without coverage when you knew or should have known about the requirement is a misdemeanor. A first conviction carries up to one year in county jail, a fine of up to double the premium you should have paid (with a floor of $10,000), or both. A second or subsequent conviction raises the minimum fine to $50,000 and calculates the maximum at triple the unpaid premium. The court can also order you to pay the costs of the investigation.8California Legislative Information. California Labor Code Section 3700.5
Civil Penalty Assessments
Independently of any criminal case, the state can assess civil penalties against uninsured employers up to $100,000.9California Legislative Information. California Labor Code Section 3722 A separate penalty is calculated as the greater of twice the premium that would have been owed during the uninsured period or $1,500 per employee.3CA.gov. FAQ – Workers’ Compensation Insurance
Stop Orders
The Director of Industrial Relations can issue a stop order that immediately prohibits you from using employee labor until you obtain coverage. Employees affected by the shutdown must still be paid for up to 10 days of lost time while you come into compliance. You can request a hearing within 20 days, but the order takes effect the moment it is served.10California Legislative Information. California Labor Code Section 3710.1 Ignoring a stop order is a separate misdemeanor punishable by up to 60 days in jail, a fine of up to $10,000, or both.11California Legislative Information. California Labor Code Section 3710.2
Direct Liability for an Injured Worker’s Costs
An uninsured employer is personally on the hook for everything an injured employee is owed: medical bills, lost wages, disability payments, all of it. If the employer can’t or won’t pay, the Uninsured Employers Benefits Trust Fund covers benefits awarded by the Workers’ Compensation Appeals Board and then pursues the employer for reimbursement.12California Department of Industrial Relations. DWC Uninsured Employers Benefits Trust Fund Having the state pay your obligations and then bill you is about the most expensive way to handle a workplace injury.
How to Get a Policy
California recognizes three ways to meet the requirement. The right one depends on the size and financial strength of your business.
Private Insurance
Most employers buy a policy from a licensed private carrier, often through a commercial insurance broker who can compare rates across insurers. Premiums are calculated using your industry classification code, total payroll, and claims history (the experience modification rate). The California Insurance Commissioner sets an advisory benchmark: for 2025, the average pure premium rate was $1.52 per $100 of payroll, though individual carriers can charge above or below that figure based on their own underwriting.13California Department of Insurance. Commissioner Lara Alerts State Leaders to Growing Costs A restaurant and an accounting firm will pay very different rates.
State Compensation Insurance Fund
The State Compensation Insurance Fund is a state-created insurer that competes with private carriers and also serves as the insurer of last resort. If your claims history or industry makes private carriers unwilling to write a policy for you, State Fund will.14California Department of Industrial Relations. DWC Employer Information It operates on a self-supporting basis and is not taxpayer-funded.15CA.gov. State Compensation Insurance Fund
Self-Insurance
Large, financially established employers can apply to self-insure through a certificate from the Office of Self-Insurance Plans. The bar is high. Applicants must have been in business for at least three years, provide three years of audited financial statements from an independent CPA, and maintain an acceptable credit rating for each of those three years. A security deposit is also required.16Legal Information Institute. Cal. Code Regs. Tit. 8, Section 15203.2 – Continuing Financial Capacity for Individual Private Self-Insurers Self-insured employers carry the full financial risk of claims and must maintain reserves to cover them. Group self-insurance is also available, letting multiple employers in the same industry pool their risk under a single certificate.