When Is Workers Compensation Insurance Required In California?

Posted on October 31, 2010

Operating a small business in California can be a very challenging and confusing  experience because of California’s complex legal code.  While there are many legal requirements small business owners will want to become acquainted and compliant with, understanding California’s workers compensation insurance requirements should be a top priority.  According to the California Labor Code, failure to comply with the state’s workers compensation requirements  can result in a misdemeanor, fines of up to $100,000 and up to one year in jail.  In addition, California’s workers compensation laws are amongst the most strictly enforced laws in the state.   Fortunately, California’s Department of Industrial Relations makes it quite clear when an employer is required to carry workers compensation insurance.

In a nutshell, any business with employee’s (even just one), is required to purchase California workers compensation insurance.  Also, if you are a roofer and you have no employee’s, you are still required to carry workers compensation.  While workers compensation is required for all employee’s, it’s generally not required for owners or workers that are considered independent contractors.  Be carefull, however, as the line between classifying a worker as an independent contractor instead of an employee is very fine and making a judgement error on this subject can be very costly.  The definition of an employee can be found under California Labor Code 3351, but you should consult with an attorney to make sure any independent contractors you may be using can be legally classified in this manner.  Improper employee classification is most prolific in the construction industry as a result of  relatively higher costs for workers compensation insurance and the prevailing use of temporary and contract labor.  Also, a businesses choice of legal structure can also have an impact on workers compensation requirements.   Often times, it is incorrectly assumed that corporate officers or directors of a corporation are not required to be covered by workers compensation insurance.  This is only true if the corporate officers/directors fully own the business.

The process of determining the workers compensation requirements for many businesses is relatively straight forward, but becomes increasingly complex when contract workers become involved.  In any event, if you are utilizing labor in your business you should consult with your insurance advisor to discuss any potential California workers compensation requirements.  If you are not working with an insurance advisor or would like a second opinion, give us a call at Schaedler Insurance and we’d be happy to review your California workers compensation needs. 

For a quick fact sheet on California workers compensation requirements, click here.

Jeremy Schaedler

El Dorado Hills, California