Workers’ Compensation Insurance in California: Mandate and Penalties

California’s workers’ compensation insurance requirements apply to virtually every employer in the state, from a 200-person restaurant to a household that hires a regular nanny. Labor Code Section 3700 requires you to secure coverage for every employee from the first day of employment, with no minimum headcount that lets you off the hook.¹ The system is no-fault: injured workers get medical care and wage replacement without proving employer fault, and employers get protection from most civil lawsuits over workplace injuries. The Division of Workers’ Compensation inside the Department of Industrial Relations runs the program.²

Who the Mandate Covers

There is no size threshold. One employee is enough to require coverage. The mandate also reaches out-of-state employers whose workers regularly perform services in California or who sign employment contracts in the state.

The statutory definition of “employee” is deliberately wide. It covers anyone working under a contract of hire, written or oral, regardless of immigration status.³ Full-time, part-time, seasonal, and minor workers all qualify. Paid interns count. Even unpaid interns can trigger coverage depending on how the arrangement is structured.

The ABC Test for Independent Contractors

Independent contractors fall outside the mandate, but California applies a strict three-part test under Labor Code Section 2775 before a worker qualifies as one. The hiring entity must prove all three:

The worker is free from the company’s direction over how they perform the work, both under contract and in practice.
The work is outside the hiring entity’s usual course of business.
The worker is customarily engaged in an independently established trade or business of the same nature as the work being performed.

Fail any prong and the worker is legally an employee who must be covered.⁴ Misclassifying workers to avoid insurance costs is treated as fraud, and because each misclassified worker is a separate violation, exposure compounds fast.

Narrow Exemptions

Labor Code Section 3352 recognizes a short list of exclusions:

Domestic workers in a private residence are exempt only if their employment over the preceding 90 calendar days totaled less than 52 hours or paid $100 or less. Anyone above those thresholds must be covered.⁵
A sole proprietor with no employees is not required to carry coverage on themselves, with the contractor exception below.
Unpaid volunteers for public agencies or nonprofits are excluded, as long as any reimbursement is limited to meals, transportation, or lodging.
Corporate officers or directors who are sole shareholders may elect to exclude themselves under certain conditions by filing documentation with the insurer.

Licensed Contractors: The Rule Just Changed

For years, only C-39 roofing contractors had to carry workers’ compensation regardless of whether they had employees. That expanded on January 1, 2023 to include C-8 (concrete), C-20 (HVAC), C-22 (asbestos abatement), and D-49 (tree service). As of January 1, 2026, every active CSLB-licensed contractor must hold a valid certificate of workers’ compensation insurance, employees or not.⁶ Sole-proprietor contractors who used to file an exemption no longer can. A lapse in coverage puts the license at risk of suspension.⁷

Three Ways to Secure Coverage

Labor Code Section 3700 gives employers three compliance paths.

Private Insurance

Most employers buy a policy from a private carrier licensed in California. Premiums are driven by classification codes for the type of work, total payroll, and your experience modification rate (X-mod), which reflects your claims history. An office with no prior claims pays far less per $100 of payroll than a roofer with a history of injuries. Rates vary between carriers, so shopping around pays off.

State Compensation Insurance Fund

The State Compensation Insurance Fund is California’s largest workers’ compensation insurer and competes with private carriers.⁸ It also functions as a backstop for employers that private insurers turn away because of high-risk industries or poor claims histories. If private carriers decline you, this is typically where you land.

Self-Insurance

Large, financially stable employers can apply to self-insure through the Office of Self-Insurance Plans. Instead of paying premiums, you pay claims directly. Applicants must show at least three years in business, three years of independently audited financial statements, and an acceptable credit rating for three consecutive years.⁹ Approved self-insurers post a security deposit and submit audited financials every year so OSIP can monitor their ability to pay future claims.¹⁰ If your financial condition slips, OSIP can raise the deposit or pull the certificate.

What the Policy Has to Pay

California workers’ compensation provides five categories of benefits to employees with work-related injuries or illnesses.²

Medical care, meaning all reasonable and necessary treatment related to the injury, with no copays or deductibles for the employee.
Temporary disability payments, roughly two-thirds of pre-injury wages, subject to a weekly cap. The 2026 maximum temporary total disability rate is $1,764.11 per week.¹¹
Permanent disability compensation for lasting impairments after maximum medical improvement.
A supplemental job displacement voucher for retraining when the worker has a permanent disability and the employer does not offer return-to-work.
Death benefits for dependents of a worker killed on the job, plus a burial allowance.

Temporary disability has a three-day waiting period. If the disability lasts longer than 14 days or the worker is hospitalized, payments become retroactive to day one.¹²

What Happens If You Operate Without Coverage

Going uninsured in California is costly, and the penalties stack. Administrative, civil, and criminal consequences can all apply at once.

Stop Orders

When the Director of Industrial Relations finds that an employer lacks required coverage, the Director must issue a stop order prohibiting the use of any employee labor until insurance is secured.¹³ Operations stop. A penalty of $100 per employee on the payroll at the time of service is assessed with the order.¹⁴

Civil Penalties

Separately, the Director issues a penalty assessment for the uninsured period: the greater of $1,500 per employee at the time of service, or twice the premium the employer would have paid during the uninsured period.¹⁵ For an employer who dodged premiums for a year on a sizable payroll, the twice-the-premium number can dwarf the per-employee figure.

If an injured worker files a claim during the uninsured period, more penalties follow. Noncompensable claims draw $2,000 per employee on staff at the time of the alleged injury. Compensable claims draw $10,000 per employee employed on the date of injury.¹⁵

Criminal Penalties

Operating without coverage is a misdemeanor. A first conviction carries up to one year in county jail, a fine of at least $10,000 (or up to double the premium that should have been paid, whichever is greater), or both. A second or subsequent conviction raises the minimum fine to $50,000 or triple the unpaid premium. Courts can also order payment of investigation costs.¹⁶

Loss of the Exclusive Remedy Defense

This is often the biggest hit. Workers’ compensation is normally an employee’s exclusive remedy, meaning the employee cannot sue in civil court for a workplace injury. If you fail to carry required coverage, that shield disappears. The worker can bring a personal injury lawsuit and pursue full damages, including pain and suffering.¹⁷ One serious injury in this posture can exceed years of premiums. If the uninsured employer can’t or won’t pay, the Uninsured Employers Benefits Trust Fund pays the worker and then pursues the employer for reimbursement.¹⁸

Posting and Claim-Handling Duties

Buying the policy is the floor. California employers must also post a notice in a conspicuous workplace location informing employees of their workers’ compensation rights, the name of the insurance carrier, and how to file a claim. Carriers usually supply the poster.¹⁹

When an employee reports a work-related injury, you must provide a DWC-1 claim form within one business day. Delay in giving the form or forwarding the claim to the insurer can trigger additional penalties and extend your exposure.

Once a claim is filed, the insurer runs most of the process, including authorizing medical treatment through utilization review. Your role shifts to cooperating with the insurer, accommodating return-to-work restrictions where possible, and avoiding any retaliation against the worker. Retaliating against an employee for filing a claim is a separate violation under California law.

1
California Legislative Information. California Code LAB 3700 – Compensation Insurance and Security
2
California Department of Insurance. Workers Compensation
3
California Legislative Information. California Code LAB 3351 – Employee Definition
4
California Legislative Information. California Code LAB 2775 – Employee or Independent Contractor
5
California Legislative Information. California Code LAB 3352 – Employee Exclusions
6
Contractors State License Board. Industry Bulletin – Workers Compensation Insurance Required for Four Additional License Classifications
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Contractors State License Board. Workers Compensation Insurance Requirements
8
CA.gov. State Compensation Insurance Fund
9
Department of Industrial Relations. Overview and Requirements for Becoming Self-Insured
10
Legal Information Institute. California Code of Regulations Title 8 15203.2 – Continuing Financial Capacity for Individual Private Self-Insurers
11
Department of Industrial Relations. DWC Announces Temporary Total Disability Rates for 2026
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California Legislative Information. California Code LAB 4652 – Temporary Disability Waiting Period
13
California Legislative Information. California Code LAB 3710.1 – Stop Order
14
Department of Industrial Relations. California Code of Regulations Title 8 Section 15574 – Stop Order
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California Legislative Information. California Code LAB 3722 – Penalty Assessment Orders
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California Legislative Information. California Code LAB 3700.5 – Criminal Penalties for Failure to Secure Compensation
17
California Legislative Information. California Code LAB 3706 – Actions Against Employers Failing to Secure Compensation
18
California Department of Industrial Relations. If Your Employer is Illegally Uninsured – How to Apply for Workers Compensation Benefits
19
Department of Industrial Relations. Labor Commissioners Office – Required Posters and Notices