Workers' Comp Insurance in California for Small Employers

• Sole owners with no employees don't have to cover themselves, though they can be added by endorsement.
• Corporate officers and directors must be included unless they own the whole corporation, in which case they can choose to be excluded.
• Out-of-state employers may need California coverage for anyone who regularly works here.
• Self-insurance is for large employers with state approval. Small businesses buy a policy from a licensed insurer.

Paying someone on a 1099 doesn't settle it. California's ABC test (Labor Code section 2775) treats a worker as an employee unless the business shows the person is free from its control, does work outside its usual line of business, and runs an independent business of the same kind. Miss any one part and the worker belongs on your policy. The CDI calls falsely reporting employees as independent contractors fraud.

• Ignoring a stop order is its own misdemeanor, with up to 60 days in county jail, a fine of up to $10,000, or both.
• The penalty assessment counts the employees on the payroll when the order is served (Labor Code section 3722).
• An injury while uninsured can add $10,000 per employee for a compensable claim, up to $100,000, once a workers' comp judge finds you were uninsured.
• The state's Uninsured Employers Benefit Trust Fund may pay the injured worker, then go after the business for repayment, including through liens.

For a crew of eight, the stop order penalty starts at $12,000 before anyone gets hurt. The Department of Industrial Relations (DIR) FAQ for employers (opens in a new tab) lists each penalty and the code section behind it. The CDI's fraud division can also demand proof of coverage, due within 10 days.

The Workers' Compensation Insurance Rating Bureau of California (WCIRB) publishes advisory rates for each class, but California uses open rating: every insurer files its own rates with the CDI, so one class can price differently from carrier to carrier. That is the practical case for comparing quotes. The CDI's workers' comp guide (opens in a new tab) walks through the calculation.

• Split payroll by class. Office staff who never go to job sites usually belong in a clerical class that rates differently from field work, so lumping everyone together can overcharge you.
• Update payroll mid-year. The CDI points out that correcting your estimate during the term can head off a large audit bill.
• Collect certificates from subs. At audit, money paid to an uninsured subcontractor can be counted as your own payroll.
• Cooperate with the audit. An employer who blocks the insurer's audit can owe three times the estimated premium.

That 2028 date comes from SB 1455, which pushed the original January 1, 2026 deadline back two years. In March 2026, CSLB sent the Legislature a proposal for a narrow exemption for some sole owners, so the rule may change again. Plan on coverage, because a lapse in a required policy suspends the license automatically. Our contractor insurance page covers the bond and the other CSLB requirements.

A standard policy has two parts. Part One pays the benefits California law requires. Part Two, employer's liability, can defend the business in the less common injury lawsuits that fall outside the comp system.

Your paperwork once you are insured

• Post the DWC 7 "Notice to Employees" where workers can see it (Labor Code section 3550).
• Give each new hire written notice of their rights at hire or by the end of the first pay period (section 3551).
• Give an injured employee a DWC 1 claim form within one working day of learning of an injury that needs more than first aid (section 5401).
• Send the completed claim form to your insurer, and call us if the claim stalls.

Comp usually sits next to general liability or a business owner's policy. An employee hurt in a company vehicle is usually a comp claim, while the other driver's damage goes to your commercial auto policy. Employers in Valencia, Saugus, Newhall and Canyon Country can see local details on our Santa Clarita business insurance page.