California Workers' Comp Exemption for Contractors

#Do California Contractors Without Employees Need Workers' Comp?

California law requires all employers to provide workers' compensation benefits for their employees. This rule is established in California Labor Code Section 3700.

However, a licensed contractor who does not have any employees can file for an exemption from this requirement. The exemption is specific and only applies as long as the contractor has no one on payroll.

#How to File for a Workers' Comp Exemption

To claim the exemption, a contractor must file a signed form with the Contractors State License Board (CSLB).

The CSLB provides Form #32 for this purpose. Submitting this form certifies that the licensee does not have any employees and is therefore exempt from the mandate to carry workers' compensation insurance.

#Which Licenses Are Not Eligible for Exemption?

Not all contractors without employees can claim an exemption. Certain license structures automatically require coverage.

A contractor whose license is qualified by a Responsible Managing Employee (RME) cannot file an Exemption from Workers' Compensation form. An RME is considered an employee under the law, which makes the business an employer.

#What Happens When You Hire Someone?

If a contractor with a valid exemption hires an employee, the exemption is no longer valid. The business immediately becomes an employer subject to the state's workers' compensation mandate.

The contractor must then obtain a workers' compensation insurance policy. Proof of this new coverage must be submitted to the CSLB's Headquarters.

This proof must be received within 90 days of the new employee's hire date.

#Reporting Your Policy to the CSLB

Once a workers' compensation policy is in place, licensees must provide specific details to the CSLB.

Under Business and Professions Code 7125.6, licensees are required to list up to the top three workers' compensation classification codes. These should be the codes for which the highest estimated payroll is reported on the policy.

#What Are the Penalties for Non-Compliance?

Failing to meet workers' compensation requirements has serious consequences for a contractor's license.

The CSLB will suspend the license of any contractor who fails to maintain required workers' compensation insurance coverage. This applies to contractors who hire an employee but fail to secure a policy, or who let their coverage lapse.

#Are Workers' Comp Rates Regulated in California?

When shopping for a policy, contractors will find that rates can vary between insurance carriers.

This is because workers' compensation insurance premium rates are not regulated by the state of California. Insurers set their own prices for coverage.