It’s easy to switch. We’ll even set you up for free

Updated: June 13, 2024

What California employers should know about workers' compensation coverage

Published By:

Jon Davis

California's workers' compensation insurance requirements

More from our experts

If you’re an employer in California, we’ve got you covered with all the information you need to protect yourself and your employees with a solid workers’ compensation policy.

Why is workers’ compensation important?

First things first, workers’ compensation insurance can help protect businesses and employees from financial loss when an employee suffers a work-related illness or injury. For covered employees, a workers’ compensation insurance policy provides medical and wage replacement benefits that are the result of a workplace injury or illness. Only workplace injuries that arise out of and in the normal course of business are compensable.

What are the workers’ compensation requirements in the state of California?

Most states use the number of employees to determine when workers’ compensation coverage must be acquired, including California. All employers are required to provide workers’ compensation coverage even if they only employ one (1) employee, and benefits cover all workers, including those who are part-time. Additionally, if you are an employer that’s not located in the state but hires employees who regularly work in California, you must obtain coverage for these workers. These requirements are part of California Labor Code Section 3700.


Are there any exceptions?

That said, there can be some exceptions to this requirement including domestic employees employed by family members, deputy sheriffs or clerks, anyone performing services in return for aid or sustenance only, anyone officiating amateur sporting events, and volunteers at non-profit recreational camps.


What if I am sole proprietor?

Sole proprietors are generally not required to have workers’ compensation insurance but may decide to purchase coverage, if they choose to.

What does workers’ compensation cover?

In most cases, a workers’ compensation policy provides medical and wage replacement benefits to employees who experience a workplace injury or illness. It is important to note that only workplace injuries that arise out of and in the normal course of business are compensable.

What happens if a company fails to carry workers’ comp in California?

There can be some less-than-desirable outcomes if an employer chooses to forgo coverage.


  • Failure to carry workers’ compensation is considered a criminal offense in the state of California and is punishable by a stop order.
  • If a business violates a stop order, there can be steep fines, starting at $10,000 and going up from there. In some cases, a violation can lead to a year of jail time.
  • In addition, if an employee is injured on the job, and the business is without workers’ comp, the business could face a penalty of $10,000 per employee if the case is compensable and $2,000 if the case is found to be non-compensable. There is a maximum penalty of $100,000.
HR call-to-action

How can employers purchase workers’ compensation?

California employers can purchase workers’ comp for their employees in a couple of different ways. For example, a company can work with a licensed commercial carrier, through a state compensation insurance fund, or self-funding may also be an option. There are different ways to administer a plan too.


Traditional workers’ comp
In a traditional plan, premiums are calculated based on an estimate of a company’s annual gross wages. After the insurer calculates the premium, employers are required to pay an upfront lump sum, sometimes accompanied by monthly or quarterly premiums over the rest of the year. At the end of the year, insurers audit the company’s payroll records to calculate the actual cost of the policy, and any amount owed or due is refunded to or collected from the employer.


Premiums are calculated each payroll with pay-as-you-go, so businesses are paying the exact amounts for their coverage. These plans are becoming more popular with businesses because it eliminates the need for upfront lump sum payments and year-end audits. Our guide goes into more detail on pay-as-you-go.


More resources for California employers

​​Tools you can use

In addition to compliance resources, we have tools that employers can use when figuring out paychecks. For example, our free California payroll calculator makes it simple to figure out withholdings and deductions for any type of payment.

Workers’ comp can be a wise investment

Workers’ compensation is required in most states and can provide peace of mind for both employers and employees. Workers can rest easy knowing they will receive partial income replacement if they need to miss work due to injury or illness. Employers are also protected from worker-related lawsuits because their employees are covered. If you need help or have questions, our team can help you find the ideal plan to suit your needs.


Please note all material in this article is for educational purposes only and does not constitute tax, benefits or legal advice. You should always contact a qualified tax, legal or financial professional, in your area for comprehensive tax or legal advice.

Take a tour to see how easy payroll can be.

Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.