Is workers’ compensation required for my business?

  • #Ask Huck
  • Basics

The short answer? If you have an employee who spends regular time in California, then yes.

But we’ll dig a little deeper. Let’s go through some common work situations and how workers’ comp relates to each of them.

First, here are two cases in which workers’ comp insurance is required in the state of California:

You are an employer in California with at least one employee.

If you run a business and have hired at least one additional person, you are required to purchase workers’ compensation insurance. (Here’s what can happen if you don’t.)

“One employee,” in this case, means just about any employee, even a temporary one. The state of California makes some exceptions, though, in the case of directors, owners, and family members. To get a better idea of whether you can make one of these exceptions, take a look at the full rules here.

You are an out-of-state employer who has hired workers in California (or you just have employees who regularly work in California).

If you have employees in California, you need to purchase workers’ comp in the state of California—no matter where you’re from.

And it actually doesn’t matter if you already have workers’ compensation coverage in another state. If you hire California workers, you still have to purchase workers’ compensation in California.

This makes sense when you think about it. Workers’ compensation is governed on a state by state basis. So, if your employee regularly works in California and is injured there, an out-of-state policy won’t cover it and you’ll be liable for their injuries. No good.

(That said, if your employee doesn’t regularly work in California and was just there for a quick trip when they were injured, the workers’ comp in your home state should cover that.)

Okay. Now, here are two situations where workers’ compensation insurance is available but not required:

You’re the sole proprietor of your business and you want workers’ compensation insurance for yourself.

If you are the only worker in your business, you are not required to buy workers’ compensation coverage.

But some business owners do purchase workers’ compensation for themselves.

The situation is rare because workers’ comp is not usually the best insurance option for a sole proprietor. Workers’ compensation is, technically, a kind of insurance where the employer assumes complete legal responsibility for all worker injuries.
So, really, a workers’ compensation policy for a sole proprietor doesn’t make sense in most cases (and many insurers won’t accept the application).

So, our suggestion? If you’re interested in this kind of coverage for yourself, you should first think about other forms of insurance, like health, life, or disability income insurance. There’s a good chance one of those coverages will meet your needs much better than workers’ compensation.

You own an organization that people volunteer for and you want to protect them.

Again, this is not required.

But if volunteers are part of your workforce, extending your workers’ comp policy to include them is both a nice gesture and a way to protect your company from liability. If a volunteer is injured while working for your company, they can actually sue you in civil court for damages. So, while workers’ comp for volunteers might seem excessive, keep in mind: it’s cheaper than hiring a lawyer.

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Disclaimer

All content on this page is for general informational purposes only and does not apply to any specific case, is not legal, tax or insurance advice and should not be relied upon. If you have any questions about the situation for your small business or the latest information in your state, you should contact an attorney for legal advice, an insurance agent or broker, and/or your state's labor or industry agency, board, commission or department. Please note that the information provided on this page may change at any time as a result of legislative action, court decisions or rules adopted or amended by any state or the federal government.