A California contractor with even one employee must carry workers' compensation insurance (or be self-insured) and keep proof on file with CSLB. A contractor with no employees can file an exemption instead, unless it holds a C-8, C-20, C-22, C-39 or C-61/D-49 license or its qualifier is a responsible managing employee (RME). That changes on January 1, 2028 (see below).
On the Law and Business exam, workers' compensation insurance is a subtopic of Section 4, Insurance and Liens, which CSLB puts at about 12% of the exam (CSLB study guide). For the rest of that section, see our Insurance and Liens notes.
The rule: any employee means coverage
Every employer except the state must secure the payment of workers' compensation in one of two ways: insurance from an insurer authorized to write it in California, or a certificate of consent to self-insure from the Director of Industrial Relations (Lab. Code §3700). The law sets no minimum number of employees and no payroll threshold.
"Employee" is broad. It includes minors and people who are not U.S. citizens. It also includes corporate officers who work for pay and working partners or LLC members paid wages regardless of profits, although some of them may elect to be excluded (Lab. Code §3351).
Calling a worker a "subcontractor" does not settle the question. A worker doing work that needs a contractor's license is presumed to be an employee (the hiring contractor can try to prove otherwise), and a person doing that work must hold a valid contractor's license to be treated as an independent contractor (Lab. Code §2750.5).
What CSLB must have on file
To get, reinstate, reactivate, renew or keep a license, the licensee must have one of these on file at all times, in the business name (Bus. & Prof. Code §7125):
- a Certificate of Workers' Compensation Insurance, issued and filed by the insurer; or
- a Certification of Self-Insurance, issued and filed by the Director of Industrial Relations; or
- if the law allows it, an exemption statement certifying that the licensee has no employees.
The insurer also reports the policy number, start and lapse dates, and any cancellation date to CSLB (Bus. & Prof. Code §7125). That is how CSLB learns when coverage ends.
Who can and cannot file the exemption
| Situation | Exemption allowed? | Source |
|---|---|---|
| No employees, and no C-8, C-20, C-22, C-39 or D-49 classification | Yes, by filing the statement | B&P §7125(b) |
| Any employee at all | No | B&P §7125(b) |
| Qualifier is an RME (CSLB treats the RME as an employee) | No | Get Licensed to Build |
| Employs a home improvement salesperson | No, proof of coverage required | Get Licensed to Build |
| Holds C-8 Concrete, C-20 HVAC, C-22 Asbestos Abatement, C-39 Roofing or C-61/D-49 Tree Service | No, even with no employees | B&P §7125(b)(2), Get Licensed to Build |
| Joint venture with no employees | Yes, by filing the statement | B&P §7125(c) |
| Inactive license | Neither coverage nor exemption needed | B&P §7125(d) |
Licenses with more than one classification
If an active license holds a C-8, C-20, C-22 or D-49 classification plus another classification, and no valid certificate is received, the registrar removes that classification instead of suspending the whole license. A similar rule covers C-39 on licenses that were active with another classification on January 1, 2013. If the licensee is later found to have employees without coverage, the license is automatically suspended (Bus. & Prof. Code §7125(f)–(g)).
Hiring someone after filing an exemption
An exemption is only good while there are no employees. Each of these is cause for discipline (Bus. & Prof. Code §7125.4):
- filing a false exemption;
- hiring a covered worker after filing an exemption without first filing a certificate of insurance or self-insurance;
- employing a covered worker without keeping coverage.
So get the policy and file the certificate before the first hire. If you hire without coverage, the license suspension takes effect on the date coverage was required, not the date CSLB finds out (Bus. & Prof. Code §7125.2).
When coverage lapses
If a required policy lapses, the license is suspended automatically, by operation of law. The suspension starts on the earlier of the date coverage lapsed or the date coverage was required (Bus. & Prof. Code §7125.2). CSLB sends a notice with the reason, the effective date and how to reinstate. The notice also says a pending suspension may be posted on the license record for up to 45 days before the suspension itself is posted.
Reinstatement can happen at any time by filing proof of coverage (Bus. & Prof. Code §7125.2). The timing of the certificate matters (Bus. & Prof. Code §7125.1):
- Received within 90 days after the effective date on the certificate: CSLB accepts it as of that date and reinstates the license, if otherwise eligible, retroactive to that date.
- Received later: the same retroactive treatment applies only if the licensee shows, on a form CSLB accepts, that the gap was due to circumstances beyond its control.
Penalties for working without coverage
| Who acts | Penalty | Source |
|---|---|---|
| CSLB | Minimum civil penalty of $10,000 per violation for a sole owner; $20,000 for a partnership, corporation, LLC or tribal business; more for later violations, up to $30,000 total per occurrence | B&P §7125.4 |
| Criminal court | The qualifier responsible under §7068.1 is also guilty of a misdemeanor | B&P §7125.4(b) |
| Criminal court | For someone who knew, or should have known, of the duty: misdemeanor, up to one year in county jail and/or a fine of up to double the unpaid premium, at least $10,000. Second conviction: triple the premium, at least $50,000 | Lab. Code §3700.5 |
| Director of Industrial Relations or CSLB registrar | Stop order on employee labor, effective immediately. Employees are paid for lost time, up to 10 days. Hearing must be requested within 20 days | Lab. Code §3710.1, B&P §7127 |
| Criminal court | Ignoring a stop order: up to 60 days in county jail and/or a fine up to $10,000 | Lab. Code §3710.2, B&P §7127 |
| Director of Industrial Relations | $1,500 per employee when a stop order is served; or, if uninsured for more than one week during the calendar year before the Director's determination, the greater of twice the premium that would have been paid or $1,500 per employee employed while uninsured | Lab. Code §3722 |
The injured worker can also sue the uninsured employer in court (Lab. Code §3706). In that lawsuit, the employer's negligence is presumed. The employer cannot argue that the worker was careless, assumed the risk, or was hurt by a co-worker's negligence (Lab. Code §3708).
At license renewal
- Exempt licensees must recertify the exemption on the renewal form or file a current certificate. Without one, the license is not renewed (Bus. & Prof. Code §7125.5).
- Insured licensees must certify the three workers' compensation classification codes with the highest estimated payroll on the policy, or every code if the policy has fewer than three (Bus. & Prof. Code §7125.6).
- Missing item: if it arrives within 30 days after CSLB's rejection notice, the renewal is made retroactive to the postmark date of the otherwise acceptable renewal (§7125.5, §7125.6).
Other employer duties that show up on the exam
- Post the notice. Keep a notice naming the insurance carrier posted where employees can read it. Failing to do so is a misdemeanor and is prima facie evidence of no insurance. Post it in English and Spanish where there are Spanish-speaking employees (Lab. Code §3550).
- Tell new hires. Give each new employee written notice at hiring or by the end of the first pay period (Lab. Code §3551).
- No payroll deductions. An employer may not take any part of the cost of workers' compensation from employees' pay. Doing so is a misdemeanor (Lab. Code §3751).
A date to watch: January 1, 2028
The version of section 7125 now in force is repealed on January 1, 2028, unless a later law changes that date (Bus. & Prof. Code §7125(i)). A replacement version has already been enacted and becomes operative that day (Bus. & Prof. Code §7125(f), operative January 1, 2028). Under it:
- No general no-employees exemption. Only a joint venture with no employees can still file the statement. Every other active licensee needs a certificate of insurance or self-insurance, even with no employees (§7125(a)–(b), operative 2028).
- Inactive licenses still need no certificate while inactive (§7125(c), operative 2028).
Until then, the rules above apply.
Quick exam checklist
- One employee is enough. There is no minimum headcount (§3700).
- C-8, C-20, C-22, C-39 and C-61/D-49 need coverage even with no employees (§7125).
- An RME-qualified license cannot use the exemption (Get Licensed to Build).
- Inactive licenses need neither coverage nor an exemption (§7125).
- Lapse = automatic suspension from the lapse date (§7125.2).
- Certificate within 90 days = reinstatement retroactive to its effective date (§7125.1).
Sources
- CSLB Law and Business Examination Study Guide (13E-LAW, 03-2026)
- CSLB: Get Licensed to Build
- California Business and Professions Code sections 7125, 7125.1, 7125.2, 7125.4, 7125.5, 7125.6, 7127
- California Labor Code sections 2750.5, 3351, 3550, 3551, 3700, 3700.5, 3706, 3708, 3710.1, 3710.2, 3722, 3751