Workers' comp insurance in California is one of the most important and most closely watched in the trade. If a worker gets hurt and you have no coverage, you can face fines, a stop order, and medical bills you pay out of your own pocket.
Also, the CSLB rules are changing: starting in 2028, almost all licensed contractors will need it.
In short
- If you have employees in California, workers' comp is required.
- Today, C-8, C-20, C-22, C-39 and C-61/D-49 licenses must have it even if they have no employees.
- Starting January 1, 2028, almost all licensed contractors will need it (SB 216 and SB 1455).
- The penalty for not having it can be $1,500 per employee or twice the premium, whichever is greater.
- If your coverage lapses, your license is suspended.
What workers' comp is and how it works
Workers' comp is workers' compensation insurance. It pays medical bills and part of the wages of an employee who gets hurt or sick because of their job.
In return, the employee generally cannot sue you over that accident. That is why it is one of the most important protections for your business. You can see how it works in the DIR frequently asked questions.
Who needs workers' comp insurance in California (and the 2028 change)
The basic rule is simple: if you have at least one employee in California, you must have coverage. If you have no employees, it depends on your license, according to the CSLB.
| Situation | Do you need workers' comp? |
|---|---|
| You have at least one employee | Yes |
| C-8 (concrete), C-20 (HVAC), C-22 (asbestos), C-39 (roofing) or C-61/D-49 (tree trimming) license, with no employees | Yes, always |
| Another license, no employees | Today you can file an exemption |
| Any license, starting January 1, 2028 | Yes, with few exceptions |
The change comes from the law SB 216, which was delayed by SB 1455. Check the list and the exceptions on the CSLB site before each renewal of your license.
If you have a CSLB exemption and you hire someone
If your license has an exemption and you hire an employee, you must send proof of coverage to the CSLB within 90 days. If your policy expires or is canceled, the license is suspended until you show you have coverage.
What happens if you have no coverage
Not having coverage when it is required is costly. These are the main consequences, according to the DIR and Labor Code 3722:
- Labor Code 3722 penalty: $1,500 per employee, or twice the premium you should have paid, whichever is greater.
- Stop order: the state can shut down your job until you have insurance.
- Accident costs: you pay the worker's medical bills and wages.
- License suspended by the CSLB.
- Crime: not having workers' comp when it is required can be a misdemeanor.
The policy audit
The price of your policy is based on the payroll you estimate when you buy it. At the end of the year, the insurance company does a policy audit to see the real payroll.
Illustrative example: imagine that when you bought the policy you reported $80,000 in payroll. By year end it was $140,000, because you hired 2 more helpers. If your rate is $8 per $100 of payroll, the math looks like this.
| Item | Amount |
|---|---|
| Premium paid (on $80,000) | $6,400 |
| Actual premium (on $140,000) | $11,200 |
| Difference you get charged | $4,800 |
The rate is only an example; it depends on your trade and your insurer. Tell your agent when your payroll grows to avoid surprises.
What drives the price of your policy
Two things weigh more than anything else: your payroll and how your work is classified. The insurer assigns a code to each type of work, and each code has its own rate.
That's why a roofer and a painter pay different rates, even with the same payroll. Your claims history also affects what you're charged at renewal.
How to keep your numbers in order
Well-recorded payroll helps you explain every dollar when the audit comes. If you keep your books up to date, you have payments, hours and who worked on each job at hand. That's part of bookkeeping for contractors.
- Keep employee payroll separate from payments to subcontractors.
- Keep each subcontractor's insurance certificates.
- Review your payroll every quarter and compare it to what you estimated.
An example for an uninsured subcontractor
Imagine you hire an unlicensed plumber for a remodel and you don't ask for an insurance certificate. If he gets hurt on the job, the law may treat him as your employee.
In that illustrative scenario, your policy or your own pocket could be on the hook for their medical bills and wages. A certificate of insurance and a license check with the CSLB would have prevented the problem.
What drives the price of your policy
Two things weigh more than anything else: your payroll and how your work is classified. The insurer assigns a code to each type of work, and each code has its own rate.
That's why a roofer and a painter pay different rates, even with the same payroll. Your claims history also affects what you're charged at renewal.
How to keep your numbers in order
Well-recorded payroll helps you explain every dollar when the audit comes. If you keep your books up to date, you have payments, hours and who worked on each job at hand. That's part of bookkeeping for contractors.
- Keep employee payroll separate from payments to subcontractors.
- Keep each subcontractor's insurance certificates.
- Review your payroll every quarter and compare it to what you estimated.
An example for an uninsured subcontractor
Imagine you hire an unlicensed plumber for a remodel and you don't ask for an insurance certificate. If he gets hurt on the job, the law may treat him as your employee.
In that illustrative scenario, your policy or your own pocket could be on the hook for their medical bills and wages. A certificate of insurance and a license check with the CSLB would have prevented the problem.
Common mistakes
- Believing that with an LLC you don't need workers' comp.
- Reporting less payroll to pay less at first. The audit fixes it and bills you for the difference.
- Listing the wrong type of work; roofing costs more than painting.
- Paying helpers without a license with a 1099. If they have no license, the law presumes they are employees. Read Employee or contractor? 5 signs.
- Paying cash off the payroll. Read why paying employees in cash does not save you money.
- Not asking subcontractors for a certificate of insurance.
If you work on roofs, also check the annual checklist for roofing. To organize your payroll, see how we work with payroll partners, and to review your policies, the insurance partners. Payroll penalties have their own guide: how to avoid payroll penalties.
What to do now
- Check whether your license is on the list of required classifications.
- Confirm with the CSLB that your policy or exemption is on file.
- Compare the estimated payroll on your policy with your real payroll.
- Ask each subcontractor for their certificate of insurance.
- If you do not have coverage, ask for a quote before 2028.
FAQ
Do I need workers' comp if I have no employees?
It depends on your license classification today. Roofing (C-39), concrete, HVAC, asbestos and tree trimming already always need it. Starting January 1, 2028, almost all licensed contractors will need it. Confirm your case with the CSLB before you renew your license.
What happens if an uninsured subcontractor gets hurt on my job?
If he did not have a license or was not truly independent, the law can treat him as your employee. Then your policy or your own pocket could cover his medical costs and wages. That is why you should ask for a certificate of insurance and check each subcontractor's license.
Why was I charged more after the audit?
Because your real payroll or type of work was higher or different from what you reported when you bought the policy. The insurance company recalculates the premium with the real numbers and bills you the difference. Tell your agent when you hire more people to avoid surprises.
When to talk to a professional
This article is a general guide. If your case involves a letter from the IRS, the FTB or the EDD, a lawsuit, an accident or a change in your business structure, talk to a lawyer, a tax preparer (CPA or enrolled agent) or the official agency. Every case is different.
How ODC helps you
At Oficina del Contratista we keep your bookkeeping up to date: we record your income and expenses, reconcile your accounts and explain your reports in Spanish. For taxes, payroll, insurance or legal matters, we connect you with independent partners; they provide those services, not ODC. See all services.
Does your policy reflect your real payroll? We connect you with a partner insurance agent. Message us on WhatsApp.
References
- CSLB – Workers' compensation requirements — Required licenses, exemption, proof of coverage within 90 days and suspension
- DIR – Employer information — Employer duties and consequences of not having coverage
- DIR – Workers' comp FAQ — How the insurance works
- California Labor Code 3722 — $1,500 penalty per employee or twice the premium
- Smith Currie – New California construction laws for 2026 (SB 216 / SB 1455) — The 2028 change and the delay under SB 1455
Runs Oficina del Contratista, a Spanish-language bookkeeping service for contractors. Has experience in management, sales and construction consulting.
Important notice: this article is educational and informational only; it is not legal or tax advice. It may contain errors or be out of date. Before making decisions, check it with a licensed expert or attorney.
