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Who must carry workers' comp insurance in California

By Richard Vaughn CPCU, ARM, AIS. Reviewed November 8, 2026. Richard is an insurance professional, not an attorney. This page explains the law; it is not legal advice.

The rule

Every employer in California except the state must secure the payment of workers' compensation (Labor Code §3700). "Employer" has no size threshold: the duty attaches when you have one employee, full-time or part-time, permanent or temporary, documented or not. California workers' compensation is a no-fault system; in exchange for paying benefits for every work injury regardless of fault, the employer is protected from being sued for the injury (Labor Code §3600). An employer that does not secure coverage loses the protection and keeps the liability, which is what the penalties page is about.

Three ways to secure it

The Labor Code allows three (Labor Code §3700):

1. Insurance from one or more insurers authorized to write workers' compensation in California. This is how almost every private employer complies. The State Compensation Insurance Fund is a state-created public enterprise fund (Insurance Code §11773) that is authorized to write workers' compensation on the same footing as private insurers and is regulated by the Insurance Commissioner in the same way (Insurance Code §11778); an employer may buy from State Fund or from any private insurer admitted in California.
2. Self-insurance, under a certificate of consent to self-insure from the Director of Industrial Relations, alone or as part of a group of employers. The applicant must show the financial ability to pay the compensation that will come due. Self-insurance is for large employers and for groups of similar employers who pool their risk; it requires security deposits and a licensed administrator.
3. Public self-insurance for counties, cities, districts and other public agencies, including joint powers pools, under a separate certificate.

An employer with a policy or a certificate has "secured" compensation. One whose policy has lapsed has not, however briefly; the lapsed coverage page covers that gap.

Who is an employee

An employee is any person in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed (Labor Code §3351). The definition is deliberately broad, and it specifically includes:

• non-citizens and minors, whatever their work authorization;
• officers and directors of a private corporation while rendering actual service for pay, unless they qualify for an exclusion and sign a waiver;
• working members of a partnership or LLC who receive wages, with the same waiver option for general partners and managing members;
• household workers employed by a homeowner or occupant whose duties relate to the household, including child care, subject to the small-hours exclusion below;
• since July 1, 2020, anyone who is an employee under the ABC test in Labor Code §2775.

The exclusions, in Labor Code §3352, are narrow and specific: unpaid volunteers for public agencies and nonprofits, certain amateur athletes and officials, deputy sheriffs serving without pay, a household worker employed fewer than 52 hours or paid $100 or less in the 90 days before the injury, and the officer, partner and professional-corporation owner exclusions that require a signed waiver. The exemptions page goes through each.

The ABC test

Since 2020 the question of who is an employee for workers' compensation is answered by the ABC test (Labor Code §2775(b)(1); Labor Code §3351(i)). A person who provides labor or services for pay is presumed to be an employee unless the hiring entity proves all three of the following: (A) the worker is free from the hiring entity's control and direction in performing the work, both under the contract and in fact; (B) the work is outside the usual course of the hiring entity's business; and (C) the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed. The burden is on the employer, and failing any one prong makes the worker an employee. Statutory exceptions for particular occupations and business-to-business relationships are in the sections that follow §2775 and send those cases to the older Borello multi-factor test. The independent contractors page covers the test and its exceptions in detail.

Out-of-state employers

An employee hired in California, or who regularly works in California, is covered by California law even for an injury that happens in another state (Labor Code §3600.5(a)). The reverse is narrower: an employee of an out-of-state employer who is only temporarily in California is exempt from the California coverage requirement only if the employer carries coverage under its home state's law that applies to the California work and that state extends the same courtesy to California employers (Labor Code §3600.5(b)). Regular work in California is not temporary, and an out-of-state policy responds here only if its insurer is admitted in California and the policy covers California operations. The practical rule is to confirm with the insurer, in writing, before the first employee starts.

Household employers

A homeowner who employs a nanny, caregiver, housekeeper or gardener directly is an employer of a household worker (Labor Code §3351(d)) and must secure coverage once the worker exceeds the §3352 threshold of 52 hours or $100 in the 90 days before an injury. Some homeowner's policies include this coverage; check yours before relying on it. Workers employed through an agency are usually the agency's employees. A family member employed by a parent, spouse or child in the household is excluded (Labor Code §3352(a)(1)).

What the policy does

A workers' compensation policy pays every benefit the Labor Code requires for a covered injury: medical treatment, temporary and permanent disability, the supplemental job displacement voucher and death benefits (Labor Code §3700; §3600). It also provides employer's liability coverage for the rare claim that falls outside the compensation system. What it costs is covered on the cost page; the notices you must post and hand to new hires, and the steps in the first week after an injury, are on the injured employee page.

Questions people ask

Richard Vaughn CPCU, ARM, AIS

Richard Vaughn spent 35 years in commercial property and casualty insurance, most of it in workers' compensation: running a self-insured group, auditing premiums, and implementing claims systems for carriers and third-party administrators. He is not an attorney. dickvaughn.com