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

In California, every employer except the state must carry workers' compensation insurance or hold a state certificate to self-insure, even with only one employee. The law has no general exemption for small businesses. What it does have is a set of people who are not counted as employees. Those include a sole owner with no employees, and owners who sign a written waiver: qualifying corporate officers and directors, general partners and LLC managing members. Licensed contractors with no employees can file an exemption with the Contractors State License Board (CSLB). That option ends for almost all contractors on January 1, 2028.

This guide sorts out who is exempt, who can opt out and how, what the CSLB exemption covers, and what happens to a business caught without coverage. If you have employees, or are about to hire one, request a workers' comp quote before the first day of work, 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 states it plainly: California employers must have workers' comp "even if they have only one employee."^[3]

The definition of employee is broad. It covers anyone in service under any appointment or contract of hire, oral 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 a worker a contractor or paying them on a 1099 does not end that presumption. The facts do.

Who is exempt from workers' comp in California?

Nobody is exempt just because the business is small. The people below are either outside the definition of employee or allowed to opt out in writing. The table sorts them by how the exemption works.

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

Two cautions go with the table. First, the family exclusion covers household work only, such as childcare or housekeeping for a parent, spouse or child.^[6] A relative who works in your business for pay is an employee like anyone else. Second, a waiver is only as good as the facts behind it. The insurer, agent and broker have no duty to check them, and a person who signs a waiver is conclusively presumed not to be covered.^[6]

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

By signing a written waiver and getting the insurer to accept it. For corporate officers and directors, the waiver must state under penalty of perjury that the person is a qualifying officer or director. It takes effect when the corporation's insurer receives and accepts it. The insurer may backdate acceptance by up to 15 days with the signer's consent. The waiver stays in effect until the person sends 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 the owner off the policy. It does not remove the need for a policy if the business has other employees. An owner who stays on the policy pays premium on their 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?

Licensed contractors must 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 cannot file the exemption if any of these apply:^[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 is not permanent. At renewal, a licensee with an exemption on file must 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 stops being valid. The CSLB must receive proof of coverage within 90 days of the hire.^[8] Coverage must then be continuous. A lapse suspends the license, and work done while suspended counts as unlicensed work.^[8]

Exemptions are common. 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?

The no-employee exemption ends for almost everyone. 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 have seen posts saying every contractor needed coverage by January 2026, that date was moved. The five classifications listed above already need coverage. Everyone else with a CSLB exemption has until January 1, 2028. A solo contractor may be able to meet the rule with a minimum-premium policy that excludes 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 come from several directions at once:

• Stop order. The Director of Industrial Relations issues a stop order that bars the employer from using any employee labor until it is insured. The order takes effect on service. Employees affected by the stoppage must be paid for up to 10 days of lost time.^[11]
• Penalty assessment. With the stop order comes a penalty of $1,500 per employee employed at the time. If the employer was uninsured for more than a week in the prior year, the penalty is the greater of twice the premium it would have paid or $1,500 per employee.^[12]
• Claim penalties. If a worker files a claim against an uninsured employer, a further penalty applies once the case is final. It is $2,000 per employee if the claim is not compensable and $10,000 per employee if it is.^[12]
• Criminal charges. Knowingly failing to insure is a misdemeanor. It carries up to one year in county jail, a fine of up to double the missing premium but not less than $10,000, or both. A repeat conviction raises the minimum fine to $50,000.^[13]
• Lawsuits. An injured employee of an uninsured employer can sue the employer for damages in court, "as if this division did not apply."^[14]
• License discipline for contractors. For a contractor, a false exemption, or employing workers without coverage, is grounds for discipline. 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. The duty applies once anyone works for you, and that person is presumed to be your employee. The exemptions are narrow. A sole owner with no employees needs nothing, a sole shareholder is excluded automatically, and other owners must sign a waiver. Contractors with no employees can file a CSLB exemption until January 1, 2028, unless their classification already requires coverage. Being uninsured risks a stop order, penalties per employee and a lawsuit, so get a workers' comp quote before your first hire.