Workers' Comp Exemption in California: Who Is Exempt, the CSLB Form, and the 2028 Contractor Rule

In California, every employer except the state has to carry workers' compensation insurance or hold a state certificate to self-insure. That's true even if you have one employee. There's no general exemption for small businesses. What the law does have is a list of people who don't count as employees. A sole owner with no employees is one. Owners who sign a written waiver are another: qualifying corporate officers and directors, general partners and LLC managing members. And licensed contractors with no employees can file an exemption with the Contractors State License Board (CSLB). For almost all contractors, that option goes away on January 1, 2028.

Below we sort out who's exempt, who can opt out and how, what the CSLB exemption covers, and what happens if you get caught without coverage. If you have employees, or you're about to hire one, request a workers' comp quote before their first day, not after.

Who must carry workers' comp in California?

Every employer except the state. Labor Code section 3700 says "every employer except the state shall secure the payment of compensation," either with insurance from a licensed carrier or with a certificate of consent to self-insure from the Director of Industrial Relations.^[1] An "employer" includes every person "which has any natural person in service."^[2] The Division of Workers' Compensation says it plainly: California employers must have workers' comp "even if they have only one employee."^[3]

The law defines "employee" broadly. It covers anyone working under any appointment or contract of hire, spoken or written, "whether lawfully or unlawfully employed," including minors and non-citizens. From July 1, 2020, it also includes anyone who is an employee under Labor Code section 2775, the ABC test for independent contractors.^[4] Anyone doing work for you, other than as an independent contractor or a person the law expressly excludes, "is presumed to be an employee."^[5] Calling someone a contractor, or paying them on a 1099, doesn't change that. The facts of the work do.

Who is exempt from workers' comp in California?

Being small doesn't exempt anyone. The people below either fall outside the definition of employee or are allowed to opt out in writing. The table groups them by how the exemption works.

Sources: Labor Code sections 3300, 3351 and 3352.^[2][4][6]

Two warnings about that table. First, the family exclusion only covers household work, like childcare or housekeeping for a parent, spouse or child.^[6] If a relative works in your business for pay, they're an employee like anyone else. Second, a waiver is only as good as the facts behind it. The insurer, agent and broker don't have to check those facts, and whoever signs a waiver is conclusively presumed not to be covered.^[6]

How do corporate officers, partners and LLC members opt out?

You sign a written waiver and the insurer has to accept it. If you're a corporate officer or director, the waiver has to say, under penalty of perjury, that you're a qualifying officer or director. It kicks in when the corporation's insurer receives and accepts it. With your consent, the insurer can backdate acceptance by up to 15 days. The waiver stays in place until you send the insurer a written withdrawal.^[6] General partners and LLC managing members use the same process under their own paragraph of the statute.^[6]

The waiver takes you off the policy. If the business has other employees, you still need the policy. If you stay on it, you pay premium on your own pay, within limits the rating bureau sets. For policies starting on or after September 1, 2026, the WCIRB counts executive officers, partners, individual employers and covered LLC members at no less than $66,300 and no more than $171,600 of yearly pay each.^[7]

How does the CSLB workers' comp exemption work?

If you're a licensed contractor, you have to keep one of two things on file with the CSLB. One is a valid Certificate of Workers' Compensation Insurance, or a certificate of self-insurance from the Department of Industrial Relations. The other is a signed exemption certifying that they have no employees.^[8] You can download the exemption form from the CSLB website or order it as Form #32.^[8]

You can't file the exemption if any of these is true:^[8]

• You employ anyone in a way that is subject to California workers' comp law.
• Your license is qualified by a Responsible Managing Employee (RME).
• You hold a C-8 Concrete, C-20 Warm-Air Heating, Ventilating and Air-Conditioning, C-22 Asbestos Abatement, C-39 Roofing or C-61/D-49 Tree Service classification. These must carry workers' comp "whether or not they have employees."

The exemption doesn't last forever. At renewal, you have to either recertify it or file a current certificate of insurance. The CSLB allows a retroactive renewal if the missing document arrives within 30 days after it notifies you.^[9] The day you hire anyone, the exemption is no longer valid. The CSLB has to get proof of coverage within 90 days of the hire.^[8] After that, coverage has to stay in place. If it lapses, your license is suspended, and any work you do while suspended counts as unlicensed.^[8]

Lots of contractors have one. On July 31, 2026, 121,679 active licenses, about 50 percent, had a current workers' comp exemption on file. Another 114,219, about 47 percent, had current coverage.^[9]

What changes for contractors on January 1, 2028?

For almost everyone, the no-employee exemption goes away. SB 1455 (Chapter 485, Statutes of 2024) moved the start date of the all-contractors rule from January 1, 2026 to January 1, 2028.^[10] The version of Business and Professions Code section 7125 that takes effect on that date requires every applicant and licensee to have a workers' comp certificate or self-insurance certificate on file. Only a licensee "organized as a joint venture" with no employees may file the no-employee statement instead. A license that is inactive on CSLB records needs no certificate while it stays inactive.^[10] The same bill required the CSLB to set up a process by January 1, 2027 to verify that licensees claiming the exemption are eligible. It may include an audit or proof.^[10]

So if you've seen posts saying every contractor needed coverage by January 2026, that date got pushed back. The five classifications listed above need coverage already. Everyone else with a CSLB exemption has until January 1, 2028. If you work solo, you may be able to meet the rule with a minimum-premium policy that excludes you as the owner. Our guide to the workers' comp ghost policy explains how that works and where it goes wrong.

What are the penalties for not having workers' comp in California?

They hit you from several sides at once:

• A stop order. The Director of Industrial Relations issues a stop order, and you can't use any employee labor until you're insured. The order takes effect when you're served. You have to pay affected employees for up to 10 days of lost time.^[11]
• A penalty assessment. The stop order comes with a penalty of $1,500 per employee on the payroll at the time. If you were uninsured for more than a week in the prior year, the penalty is twice the premium you would have paid or $1,500 per employee, whichever is more.^[12]
• Claim penalties. If a worker files a claim while you're uninsured, there's another penalty once the case is final: $2,000 per employee if the claim isn't compensable, $10,000 per employee if it is.^[12]
• Criminal charges. Knowingly going without coverage is a misdemeanor. You can get up to a year in county jail, a fine of up to double the missing premium (at least $10,000), or both. A second conviction raises the minimum fine to $50,000.^[13]
• Lawsuits. If you're uninsured, an injured employee can sue you for damages in court, "as if this division did not apply."^[14]
• License discipline, if you're a contractor. A false exemption, or having workers without coverage, is grounds for discipline against a contractor's license. Minimum civil penalties are $10,000 per violation for a sole owner and $20,000 for a partnership, corporation, LLC or tribal business, under the law as amended effective January 1, 2026.^[15]

This guide is for educational purposes and summarizes the California Labor Code, the Business and Professions Code, CSLB guidance and WCIRB rating rules as published in September 2026. Statutes and CSLB rules change, and your insurer and the CSLB decide how they apply to you. Menlo Insurance Services is a licensed California insurance broker (license 6020106) and may earn a commission on policies it places. Talk to a licensed broker, and an attorney where needed, about your actual situation.

The Bottom Line

California has no small-business exemption from workers' comp. Once anyone works for you, you have to cover them, and the law presumes they're your employee. The exemptions are narrow. A sole owner with no employees needs nothing. A sole shareholder is excluded automatically. Other owners have to sign a waiver. Contractors with no employees can file a CSLB exemption until January 1, 2028, unless their classification already requires coverage. Go without coverage and you risk a stop order, per-employee penalties and a lawsuit. Get a workers' comp quote before your first hire.