Q: Does My Business Need Workers’ Comp Insurance in California?

If you own a business in California that has employees, including those who are family members, you must have workers’ compensation insurance.

It’s required in case an employee becomes sick or is injured as a result of their job. Workers’ comp can cover a number of expenses for your employee, including:

  • Medical expenses
  • Physical therapy
  • Lost wages

The same applies even if your business is based in a different state. You’ll need workers’ comp coverage in California if any of your employees frequently work in the state or if you hire a California-based employee.

If you don’t have workers’ compensation insurance when you should, you could be fined and jailed—California considers not having coverage a criminal offense. And if your employee does get sick or injured on the job, they’d have the right to sue you as well as report a workers’ comp claim.

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If my business doesn’t have employees, do I still need workers’ comp?

Generally, nope.

If your business is a sole proprietorship, single-member LLC, or partnership, and you don’t have employees, California law usually doesn’t require you to have a workers’ comp policy.  (If you have a different business structure, it’ll depend on whether the owners can be excluded. We’ll get to exemptions in a bit.)

An interesting exception is roofers. If you’re a roofer, you’re required to have workers’ comp even if your business doesn’t have employees.

That said, you may still find it useful to have workers’ compensation insurance even when it’s not required. For example, it can

  • Supplement lost income if you are unable to work due to work-related injuries or illnesses,
  • Assist with medical bills, or 
  • Be required by clients who want you to have your own workers’ comp coverage.

The laws around workers’ comp insurance can be nuanced, so if you’re unsure about whether you should have it, consult an insurance professional or a legal advisor.

Do independent contractors count as employees?

Typically, you don’t have to cover independent contractors under your workers’ compensation policy. That’s because they’re not technically considered employees of your business.

The line separating independent contractors from employees isn’t always clear, though. Talk with your accountant to determine whether the person is a 1099 contractor or W-2 employee.

Since your 1099 contractors aren’t generally covered under your policy, you may want to require them to have their own workers’ comp insurance. That way if they are injured on the job, they’ll have their own coverage.

Having this requirement for your contractors will also protect you from paying higher premiums. If your workers’ compensation insurance company sees that your 1099 contractors don’t have their own coverage, they may adjust your policy and premiums to include your contractors.

Is there anyone who can be excluded from a workers’ comp policy?

Your workers’ comp policy must cover all of your employees.

All owners, officers, directors, board members, managing members, and partners must generally be included as well. However, there are some instances when these individuals may be excluded. You can find a list of eligibility guidelines here.

If an eligible person wants to be excluded, they’ll need to sign a waiver that you need to file with your insurance company within 15 days of your policy effective date. This waiver will stay in effect until a written withdrawal of the waiver is provided to your insurer.

If you switch to another insurance company, eligible individuals who want to opt out will have to refile waivers with your new insurer. 

Okay, got it. How do I get workers’ compensation insurance for my business?

To get workers’ comp insurance, contact a licensed insurance agent or broker to get a quote. You’ll be asked a few general questions about your business, such as your business’ location, industry, annual payroll, and more.

If you’re having a hard time finding an insurance company that’s able to insure your business, you can turn to California’s State Compensation Insurance Fund for help.

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