Short answer: In California, you need workers' compensation insurance from your first employee, full- or part-time (Labor Code §3700). Going without it is a misdemeanor punishable by up to a year in county jail, a fine of up to double the premium that would have been due (at least $10,000), or both (§3700.5), and the state can issue a stop order with a $1,500 penalty per employee. Buy a policy before anyone starts work, classify each job correctly, post the required notices and give new hires the written notice. When an employee reports an injury, give them a claim form (DWC-1) within one working day, and within one working day after they file it, authorize medical treatment of up to $10,000 while the claim is decided (§§5401, 5402). Keep payroll records by job class so the year-end audit doesn't bring surprises, and invest in safety, which is the most reliable way to control premiums over time.
This guide walks a small California employer through workers' comp in the order you'll need it: before the first hire, when you buy, while you operate, and when someone gets hurt. For an overview of benefits and premium factors, see our California workers' comp small business guide. It's general information, not legal advice.
Part 1: Before your first hire
Step 1: Confirm you'll have an employee
Under California law, a worker you pay is presumed to be an employee unless your business can show all three parts of the ABC test (Labor Code §2775 and following). Calling someone a contractor or paying them on a 1099 doesn't settle it. If in doubt, get advice before the person starts. See do I need workers' comp for 1099 contractors?, who is exempt from workers' comp in California and do I need workers' comp with no employees?
Step 2: Know the penalties for going without
| Consequence | Rule | Source |
|---|---|---|
| Criminal penalty | Misdemeanor; up to one year in county jail, a fine of up to double the premium that would have been due (at least $10,000), or both | Labor Code §3700.5 |
| Stop order | The state can order you to stop using employee labor, with a penalty of $1,500 per employee | Labor Code §3722 |
| If an employee is hurt | Larger penalties apply, and you can be pursued for the cost of benefits | See California uninsured employer penalties |
Step 3: Know the special cases
- Part-time workers count. See is workers' comp required for part-time employees?
- Household workers you hire at home can be your employees for workers' comp, and homeowners policies with personal liability must include coverage for them unless other coverage applies. See household employee workers' comp.
- Contractors licensed by the CSLB must file a workers' comp certificate or exemption, and some classifications must carry it even with no employees. See the contractor workers' comp 2028 guide.
- Employees in other states may need coverage under those states' laws. See workers' comp requirements by state.
Part 2: Buying the policy
Step 4: Describe the work accurately
Premiums are based on the classification codes for the work each employee does and the payroll in each class. The Workers' Compensation Insurance Rating Bureau of California (WCIRB) maintains the classification system. Describe every job honestly. An office manager who also goes to job sites may belong in a different class than a purely clerical employee. See how much workers' comp costs in California.
Step 5: Estimate payroll realistically
Your deposit premium is based on estimated payroll. The final premium is based on actual payroll at audit. Underestimating leads to a bill later; overestimating ties up cash.
Step 6: Shop the market
Quotes vary because insurers apply their own rates, credits and fees on top of the classification and payroll. An independent broker can compare several insurers. Higher-risk trades may need specialized markets. See how to get workers' comp for a high-risk business in California.
Step 7: Bind before day one
Coverage must be in place before the employee starts. Keep the policy and certificate handy, and never let it lapse. See what happens if workers' comp lapses in California.
Part 3: Running your business with workers' comp
Step 8: Post the notices and give new hires the pamphlet
California employers must post the official Notice to Employees poster, which names your insurer and explains how to report an injury, and give new hires the Division of Workers' Compensation's written notice. Download them from the Division of Workers' Compensation.
Step 9: Have a written safety program
Cal/OSHA requires most employers to have an Injury and Illness Prevention Program. Cal/OSHA Consultation Services offers free, confidential help. Fewer injuries mean fewer claims, and over time a better experience modification.
Step 10: Collect certificates from subcontractors
If you hire subcontractors, get a current certificate of workers' comp insurance before they start. If a sub has no coverage, its workers may be treated as yours at audit.
Step 11: Keep payroll by class
Track payroll separately for each job class. It makes the audit faster and more accurate.
Step 12: Tell your broker when things change
New locations, new kinds of work, or big payroll changes during the year should be reported.
Part 4: When an employee gets hurt
| Step | Deadline | Source |
|---|---|---|
| Employee gives written notice of the injury | Within 30 days of the injury | Labor Code §5400 |
| Employer gives or mails a claim form (DWC-1) and notice of potential eligibility | Within one working day after learning of an injury that causes lost time beyond the work shift or treatment beyond first aid | Labor Code §5401 |
| Employer authorizes medical treatment | Within one working day after the completed claim form is filed, up to $10,000 until the claim is accepted or rejected | Labor Code §5402(c) |
Your knowledge of an injury counts as notice, even if the employee doesn't fill out a form. See California workers' comp claim reporting deadlines for employers and compare states in workers' comp injury reporting deadlines by state.
What to do, in order
- Get the employee care. Call 911 for emergencies.
- Give the DWC-1 claim form within one working day.
- Report the claim to your insurer right away. Late reporting can make claims cost more.
- Authorize treatment within one working day after the form is filed.
- Fix the hazard that caused the injury and document it.
- Offer modified duty if the doctor allows it. Returning to work sooner is often better for the employee and lowers claim costs.
- Keep records of the injury, your report and your communications.
Don't discourage an employee from filing a claim or treat them differently for filing.
Part 5: The audit and renewal
At the end of the policy term, the insurer audits your actual payroll and classifications. Have payroll reports by class, subcontractor certificates and any 1099 records ready. Review the audit result. If you think a classification is wrong, ask your broker to help you dispute it.
Once your business qualifies, WCIRB calculates an experience modification that compares your claims with others in your class. A mod below 1.00 lowers premium; above 1.00 raises it. Safety, prompt reporting and return-to-work programs all help.
A small-employer checklist
- [ ] Employee status confirmed under the ABC test
- [ ] Policy bound before the first day of work
- [ ] Classifications and payroll estimate accurate
- [ ] Notice to Employees poster up; new-hire pamphlet given
- [ ] Injury and Illness Prevention Program written
- [ ] Subcontractor certificates on file
- [ ] Payroll tracked by class
- [ ] Injury steps posted for supervisors (DWC-1 in one working day)
- [ ] Renewal and audit dates on the calendar
Questions to ask your broker
- Which classification codes will my employees be placed in, and why?
- How is my deposit premium calculated, and how will the audit work?
- Do I qualify for an experience modification yet?
- What safety or return-to-work programs could earn credits?
- How do I report a claim, and what does the insurer need from me?
- Does the policy cover employees who work in other states?
- What happens if I hire a subcontractor without coverage?
- When is my renewal, and how early should we start?
Key terms
- Classification code: a code describing the type of work, used to price workers' comp.
- Experience modification (X-Mod): a factor that compares your claims with others in your class.
- Deposit premium: the premium paid at the start of the policy based on estimated payroll.
- Premium audit: the year-end review of actual payroll.
- DWC-1: the California workers' comp claim form.
- Employer's liability: the part of a workers' comp policy that covers certain lawsuits outside the comp system.
- IIPP: an Injury and Illness Prevention Program required by Cal/OSHA.
Your yearly workers' comp review
Before renewal, compare the job classifications on your policy with what each employee actually does now, update your payroll estimate, collect fresh subcontractor certificates, and review any injuries from the past year with your broker. Ask whether your experience modification changed and why. Make sure the Notice to Employees poster still names the right insurer.
Related state tables and guides
- Workers' compensation insurance
- Workers' comp claim filing deadlines by state
- Small business insurance in California: required vs. recommended
- Workers' compensation insurance in Los Angeles
- State insurance rules hub
Frequently asked questions
When do I need workers' comp in California?
From your first employee, full- or part-time (Labor Code §3700). Coverage should be in place before the employee starts work.
What happens if I don't carry workers' comp?
It's a misdemeanor punishable by up to a year in county jail, a fine of up to double the premium that would have been due (at least $10,000), or both (Labor Code §3700.5). The state can also issue a stop order with a $1,500 penalty per employee.
What do I have to do when an employee reports an injury?
Give or mail a DWC-1 claim form within one working day, report the claim to your insurer, and authorize medical treatment of up to $10,000 within one working day after the form is filed (Labor Code §§5401, 5402).
How is my workers' comp premium calculated?
Mainly from your payroll in each job classification and the insurer's rates for those classes, adjusted by your experience modification if you have one, plus credits, debits and fees.
Can I treat workers as independent contractors to avoid workers' comp?
Only if they truly meet California's ABC test. A worker paid on a 1099 can still be your employee for workers' comp.
What is a workers' comp audit?
A year-end review of your actual payroll and classifications. The insurer uses it to calculate the final premium, which can lead to a refund or an additional bill.
Alishahi Insurance · 439 N Canon Dr, Penthouse, Beverly Hills, CA 90210 · (877) 711-4545 · CA License #4348151. General information only. Not legal, tax or financial advice, and not a coverage determination. Coverage depends on policy language and underwriting.