Do independent contractors need workers' comp in California?
A genuine independent contractor doesn't have to be covered by your workers' comp policy, and a contractor with no employees isn't required to carry workers' comp on themselves. But California presumes workers are employees unless the hiring business proves all three parts of the ABC test (Labor Code 2775): the worker is free from your control, does work outside your usual course of business, and runs an independently established business. If any prong fails, the 'contractor' is your employee and must be covered. Some occupations are judged under the older Borello test instead, and certain licensed contractors must carry workers' comp regardless. See who is exempt from workers' compensation insurance in California for the full exemption list.
- California presumes workers are employees; the hiring business must prove contractor status.
- All three ABC prongs must be met. Failing prong B (work within your usual business) is the most common trap.
- Some professions and business-to-business arrangements are exempt from the ABC test and use the multi-factor Borello test.
- Certain CSLB-licensed trades must carry workers' comp even with no employees, expanding to all licensed contractors on January 1, 2028.
- Misclassification can make you liable for uninsured-employer penalties plus willful misclassification penalties under Labor Code 226.8.
The ABC Test, Prong by Prong
• B: Outside your usual business. A bakery hiring an electrician passes; a bakery hiring a 'contract' cake decorator likely fails.
• C: Independent business. The worker has their own business, such as a license, other clients, marketing and their own tools, before and apart from working with you.
Fail any one, and the worker is an employee for California wage and workers' comp purposes.
Exemptions From the ABC Test
Some CSLB classifications, including concrete (C-8), HVAC (C-20), asbestos abatement (C-22) and tree service (D-49), must carry workers' comp even with no employees. Under SB 216 as amended by SB 1455, all licensed contractors must carry it from January 1, 2028.
Should You Require Contractors to Carry Their Own Coverage?
Misclassification Costs
Illustrative Case: The 'Contract' Delivery Drivers
Scenario: An illustrative California furniture store paid three delivery drivers as 1099 contractors and carried workers' comp only for its sales staff. One driver injured his back carrying a sofa.
Resolution & Judicial Outcome: Delivering furniture was part of the store's usual business, so the drivers failed prong B of the ABC test and were employees. The store's insurer added the drivers' payroll at audit, and the store paid back premium and faced penalty exposure for the period they were uncovered.
What You Should Do: Step-by-Step Action Plan
Critical Mistakes to Avoid
- Assuming a signed contractor agreement settles the question.
- Hiring 'contractors' to do your core business work.
- Not collecting certificates of insurance from subcontractors.
- Ignoring CSLB rules that require coverage for certain licensed trades.