Do I Need Workers’ Comp Insurance for My Small Business in California?

This is one of the questions I get most from small business owners, especially people who are just getting started or who have recently brought on their first employee. The short answer is: if you have even one employee in California, yes — you are required by law to carry workers’ compensation insurance.

Let me walk you through what that means and why it matters.

California’s Rule Is Pretty Clear

Under California Labor Code Section 3700, any business that has one or more employees must carry workers’ compensation insurance. It doesn’t matter if they’re full-time, part-time, or even a family member you’ve hired. The moment someone is on your payroll, the requirement kicks in.

California is one of the strictest states in the country on this, and the penalties for not having it are serious.

What Workers’ Comp Actually Does

Workers’ compensation covers your employees if they get injured or become ill because of their job. It pays for:

• Medical treatment related to the work injury or illness
• A portion of their lost wages while they’re unable to work
• Disability benefits if the injury causes long-term limitations
• Death benefits to the employee’s family in the worst-case scenario

Without it, if an employee gets hurt on the job and you don’t have coverage, you’re personally on the hook for all of those costs. And medical bills and lost wage claims add up very fast.

What Happens If You Don’t Have It

This is the part business owners need to hear. Operating in California without workers’ comp when you have employees is a criminal offense. The penalties include:

• Fines of up to $100,000
• Stop-work orders — the state can shut your business down until you get coverage
• Personal liability for the full cost of any employee injuries
• Potential criminal charges — it’s classified as a misdemeanor and can result in jail time

The state audits businesses and takes this seriously. It’s not worth the risk.

What About Independent Contractors?

This is where it gets a little complicated in California. Thanks to AB5 (the gig worker law), California has tightened up the definition of “independent contractor” significantly. A lot of workers who might have been classified as contractors in other states are considered employees under California law.

If you’re using contractors and you’re not sure whether they qualify under California’s rules, it’s worth getting clarity before you assume you don’t need workers’ comp. Getting it wrong can expose you to serious liability.

How Much Does It Cost?

Workers’ comp premiums are calculated based on your industry, your payroll, and your claims history. High-risk industries like construction pay more than lower-risk ones like office work.

As a rough benchmark, California businesses typically pay somewhere between $1 and $3 per $100 of payroll for workers’ comp, though it varies quite a bit. A small cleaning business or a contractor will pay more than a small retail shop.

The best way to get an accurate number is to get a quote specific to your business. I work with several commercial insurance carriers and can usually put together a few options so you can compare.

One More Thing — What If You’re Self-Employed?

If you’re a sole proprietor with no employees, you’re generally not required to carry workers’ comp for yourself (though you can opt in if you want to). But the moment you hire someone — even part-time — the requirement applies.

Some sole proprietors in high-risk industries like construction are required to carry it regardless, so it depends on your specific situation.

Bottom Line

If you have employees in California, you need workers’ comp. If you’re not sure whether your situation requires it, or if you want to compare options and pricing, reach out. I work with a lot of small businesses in the Downey area and I’m happy to help you figure out exactly what you need.

Elizabeth Govea — EGP Insurance
📞 (562) 248-6840
✉ [email protected]
CA License #0I03196