Who Qualifies for a Workers’ Comp Exemption in California?

A workers’ comp exemption in California is available only in a few specific situations: you’re a sole proprietor with no employees, a partner or LLC member who files a written waiver, a corporate officer who meets a stock-ownership threshold and signs a waiver under penalty of perjury, an owner of a professional corporation who actively practices the licensed service, a household worker below a small hours-and-wages floor, an unpaid volunteer, or a genuine independent contractor under the ABC test. Outside those categories, every California employer must carry coverage the moment it hires one person, and operating without it is a misdemeanor with a $10,000 minimum fine.

Sole Proprietors With No Employees

A sole proprietor who runs the business alone is not required to carry workers’ compensation insurance, because the owner isn’t an employee of their own business. Coverage becomes mandatory the instant that owner hires anyone, including part-time workers, minors, and undocumented workers — Labor Code Section 3351 defines “employee” broadly, and the legal presumption runs in favor of employee status.¹

A sole proprietor can choose to buy coverage for themselves. The inclusion has to be stated in the policy or added by endorsement.² Anyone in a physical trade should weigh this seriously, because a work injury without coverage means paying medical bills personally.

Partners and LLC Members

Partnerships and LLCs don’t get the same automatic treatment. Working members of a partnership or LLC who receive wages are treated as employees under Labor Code Section 3351(f) and are automatically pulled into the coverage obligation.¹ General partners and managing LLC members can elect out by filing a written waiver under Section 3352(17).

The waiver only exempts the owners themselves. The moment the partnership or LLC hires a non-owner, that employee must be covered.

Corporate Officers and Directors

Officers and directors of private corporations count as employees whenever they perform paid services, and they’re included in coverage by default.¹ They can opt out, but only by meeting one of two ownership tests under Section 3352(16) and signing a written waiver under penalty of perjury.

The first path: the officer or director personally owns at least 10% of the corporation’s issued and outstanding stock. The second: the officer or director owns at least 1% of the stock, a close family member (parent, grandparent, sibling, spouse, or child) owns at least 10%, and the officer or director carries their own health insurance.³ If every officer and director jointly owns 100% of the corporation, they may all elect exclusion.²

None of this removes the corporation’s obligation to cover any rank-and-file employees. The waiver only pulls the signing officer out of the policy.

Owners of Professional Corporations

Owners of professional corporations — law firms, medical practices, and other entities organized under Corporations Code Section 13401 — have a separate exclusion under Section 3352(18). A practitioner who actively renders the professional service the corporation was organized to provide can waive coverage, provided they carry their own health insurance and sign a written waiver under penalty of perjury.³

Household and Domestic Workers

Hiring a housekeeper, nanny, gardener, or personal assistant generally makes you an employer under Section 3351(d), which covers people employed at a residential dwelling for duties related to maintaining the home, including child care.¹

Two narrow exemptions apply. Under Section 3352(8), a household worker is excluded if, during the 90 calendar days before an injury, the employment was contracted for less than 52 hours or for wages of $100 or less.³ Section 3352(1) also excludes a household worker employed by a parent, spouse, or child. A regular weekly housekeeper or full-time nanny won’t fit either carve-out.

Volunteers and Unpaid Workers

Unpaid volunteers for public agencies and private nonprofits are excluded under Section 3352(9) as long as they receive no pay beyond meals, transportation, lodging, or reimbursement for incidental expenses.³ Related exclusions reach volunteer ski patrollers, amateur sports officials, and student athletes.

Section 3352 also excludes anyone performing services in exchange only for aid or sustenance from a religious, charitable, or relief organization, and unpaid volunteers at camps, huts, or lodges run by a 501(c)(3) nonprofit where the volunteer or a family member belongs to the organization.

These exemptions are fact-specific. A volunteer who starts receiving a regular stipend beyond incidental expenses can quietly cross into employee status.

Independent Contractors Under the ABC Test

A hiring entity owes no workers’ compensation to a genuine independent contractor, and this is where most exemption disputes happen. Assembly Bill 5 codified the ABC test, which presumes every worker is an employee unless the hiring entity proves all three of the following:⁴

The worker is free from the hiring entity’s control and direction, both under the contract and in practice.
The work is outside the usual course of the hiring entity’s business. This is the prong most businesses fail — a web design firm hiring a freelance web designer almost never satisfies it.
The worker is customarily engaged in an independently established trade of the same nature as the work being performed.

Fail any one prong and the worker is an employee, with coverage required.⁵ Misclassification doesn’t only create workers’ comp liability; it also opens the door to unpaid payroll taxes, overtime, and meal and rest break claims.

Certain licensed professions (physicians, attorneys, architects, engineers, accountants, licensed insurance agents, securities broker-dealers, and others) are measured instead under the older Borello multifactor test rather than the ABC test.⁴ If you’re hiring in one of these fields, verify current requirements; some exemptions have sunset dates.

Licensed Contractors and CSLB Form 13L-50

Contractors licensed through the Contractors State License Board face a specific filing requirement. A licensee with no employees must file CSLB Form 13L-50, certifying under penalty of perjury that they do not employ anyone subject to California’s workers’ compensation laws.⁶ The exemption becomes invalid the day the licensee hires anyone, and the licensee then has 90 days from the effective date of a new workers’ compensation policy to submit proof of coverage to CSLB.

Some classifications can’t claim the exemption at all. These include C-8 (Concrete), C-20 (HVAC), C-22 (Asbestos Abatement), C-39 (Roofing), and C-61/D-49 (Tree Service).⁶ Joint ventures and licensees who use a Responsible Managing Employee as their qualifier are also ineligible, regardless of staffing.

Ghost Policies When a Client Demands Proof

Exempt sole proprietors and independent contractors often run into clients or general contractors who refuse to hire them without a certificate of insurance. A ghost policy solves the paperwork problem: it’s a workers’ compensation policy with no covered employees, generating a certificate that satisfies contractual requirements without providing meaningful benefits.⁷ Because premium is based on payroll and a sole proprietor has none, the cost is usually minimal. Know what you’re buying: a document, not actual injury protection.

Penalties for Getting the Exemption Wrong

Operating without required workers’ compensation coverage is a misdemeanor. A first conviction carries up to one year in county jail, a fine of up to double the premium the employer should have paid (with a $10,000 floor), or both. A second conviction raises the fine to triple the owed premium with a $50,000 minimum, and the court must also charge the employer for investigation costs.⁸

Criminal exposure isn’t the only risk. The Division of Labor Standards Enforcement can issue a stop order that shuts down operations immediately, with a penalty of $100 per employee on the payroll at that time, not just those working that day. If an uninsured employee is injured and the Workers’ Compensation Appeals Board finds the injury compensable, the per-employee penalty rises to $500.⁹ The employer also becomes personally liable for all medical costs and disability benefits the worker would have received, which can run into six figures for a serious injury.

1
California Legislative Information. California Code LAB 3351 – Employees
2
Division of Workers’ Compensation. DWC FAQs for Employers
3
California Legislative Information. California Labor Code 3352
4
California Department of Industrial Relations. Independent Contractor Versus Employee
5
Labor and Workforce Development Agency. ABC Test
6
Contractors State License Board. Exemption from Workers’ Compensation Insurance
7
Contractors State License Board. Workers’ Compensation Requirements
8
California Legislative Information. California Code LAB 3700.5
9
California Department of Industrial Relations. Section 15568 – Types of Penalty Assessment