Who is exempt from workers' compensation insurance in California?
In California, every employer with even one employee must carry workers' compensation insurance (Labor Code 3700). The main exemptions are for owners, not employees: sole proprietors with no employees; general partners and LLC managing members who sign a waiver; and corporate officers or directors who own at least 15% of the stock and sign a sworn waiver. Household domestic workers who worked fewer than 52 hours or earned less than $100 in the prior 90 days are excluded, and genuine independent contractors who pass the ABC test are not employees. Misclassifying a worker is the most common and costly mistake. For how workers' comp fits with other required coverage, see our business insurance coverage and requirements hub.
- One employee is enough to trigger California's workers' comp requirement.
- Sole proprietors and partners are not required to cover themselves, only their employees.
- Officers and directors can opt out only if they own at least 15% of the shares and sign a sworn waiver (since AB 2883, effective 2017).
- Household workers below 52 hours or $100 in 90 days are excluded; above that, coverage is required.
- Penalties for uninsured employers include a stop order, a penalty of the greater of twice the unpaid premium or $1,500 per employee, and possible misdemeanor charges.
Who Can Be Exempt
• General partners and LLC managing members: Can be excluded by signing a waiver; working members are otherwise covered.
• Corporate officers and directors: Can opt out only if they own at least 15% of the issued stock and sign a sworn waiver, effective when the insurer receives and accepts it.
• Household domestic workers: Excluded if they worked fewer than 52 hours or earned less than $100 for the household in the 90 days before the injury.
• Independent contractors: Not employees if they pass California's ABC test: free from your control, doing work outside your usual business, and running an independent business.
• Volunteers: Unpaid volunteers are generally not employees.
• Workers under federal systems: Federal employees, railroad workers and many maritime workers fall under federal programs. Marine employers should read marine business insurance.
Who Is NOT Exempt (Common Misunderstandings)
• Family members employed by a corporation or LLC generally must be covered.
• Workers you call 'contractors' who fail the ABC test are employees, whatever the paperwork says.
• Licensed contractors: Certain 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, the requirement expands to all licensed contractors on January 1, 2028.
California's Department of Industrial Relations can issue a stop order prohibiting use of employee labor, and assess the greater of twice the premium you should have paid or $1,500 per employee. Willfully failing to insure is a misdemeanor punishable by up to a year in jail and a fine of at least $10,000. Fines are not insurable; see does business insurance cover lawsuits for what liability policies won't pay.
Should an Exempt Owner Opt Out?
Workers' Comp Isn't Theft or Liability Coverage
Illustrative Case: The Two-Owner Corporation
Scenario: An illustrative California design firm is owned by two officers, one with 85% of the shares and one with 15%, and employs a part-time assistant. The owners assumed the whole firm could skip workers' comp because it was 'just the owners'.
Resolution & Judicial Outcome: Both officers met the 15% ownership threshold and could waive coverage by signing sworn waivers, but the part-time assistant had to be covered. The firm bought a policy covering the assistant, with the officers excluded by waiver.
What You Should Do: Step-by-Step Action Plan
Critical Mistakes to Avoid
- Assuming part-time or family employees don't count.
- Labeling workers as contractors without applying the ABC test.
- Assuming an owner waiver also covers employees.
- Missing the CSLB classification rules if you hold a contractor's license.