Workers’ Comp for Independent Contractors in California
In California, the 1099 form says nothing about who owes workers’ comp; the Labor Code decides. This guide covers workers’ comp for independent contractors from both sides of the invoice: the contractor whose client wants a certificate, and the business that pays contractors and answers for them at audit.
The law starts by calling every worker an employee
Labor Code section 3357 presumes that anyone performing services for another is an employee unless they are an independent contractor or expressly excluded. Section 3700 then requires every employer with one or more employees to provide workers’ compensation. Put together, a business that pays someone to work bears the burden of showing that person really is in business for themselves.
The Labor Commissioner’s office is direct about paperwork: a 1099, a contract or the label “independent contractor” does not determine employment status. Since July 1, 2020, Labor Code section 3351(i) has treated anyone who is an employee under the ABC test in section 2775 as an employee for workers’ comp too.
AB 5 and the ABC test, as they apply to comp
The California Supreme Court adopted the ABC test in the 2018 Dynamex decision. AB 5, signed in September 2019, wrote it into law, and AB 2257 later moved it into Labor Code sections 2775 through 2787. To keep a worker off its payroll, the hiring business must prove the person is free from its control in contract and in fact, does work outside its usual course of business, and runs an independently established trade of the same kind. Our guide to employees vs. independent contractors in California walks through each prong.
Some relationships use the older Borello test instead, and two exemptions matter most for comp. The business-to-business exemption in section 2776 needs all 12 of its conditions, including a written contract stating the rate and payment date, and it is unavailable for work requiring a CSLB license. The construction subcontractor exemption in section 2781 requires a written subcontract, a CSLB license for the work, and proof the sub bears financial responsibility for its work through insurance, indemnity, performance bonds or warranties. Insurance is part of the test, not an afterthought.
Labor Code 2750.5 and the unlicensed contractor
Construction adds a second presumption. Under section 2750.5, a worker performing services that require a contractor’s license, or performing them for someone who must hold that license, is presumed to be an employee. The hiring party can rebut that only by showing the worker controls how the job is done, has an independently established business and holds that status in good faith. The statute also says plainly that anyone doing license-required work must hold a valid license to be an independent contractor.
State Fund’s construction audit guide sums it up in one line: unlicensed individuals who perform work requiring a contractor’s license are employees for workers’ compensation purposes. A general contractor that brings in an unlicensed drywall crew has, for comp purposes, hired a drywall crew.
Can a 1099 contractor buy workers’ comp for themselves?
A contractor with no employees is not required to cover themselves, according to the DWC. Coverage for the owner is optional, and if it is bought, the owner’s inclusion must be clearly stated in the policy or added by endorsement. Availability is uneven: State Fund’s broker guidance says individual owners of a sole proprietorship are not covered in its policy contract, while some insurers offer owner-only coverage. NEXT Insurance notes that self-employed people often buy it to meet client and licensing requirements, to protect their income and to be ready to hire.
The picture changes the moment a contractor takes on a helper. One employee makes the contractor an employer under section 3700, and workers comp for 1099 contractors stops being optional. We request workers’ compensation quotes for contractors who need a certificate for a client or who are about to hire, and the insurer decides after reviewing the trade and payroll.
What the hiring business faces at audit
At a premium audit, State Fund says it looks at the employment status of everyone the policyholder paid. Payments reported on Form 1099 to uninsured or unlicensed workers may be included in the audit as payroll and charged premium, decided case by case. Its construction guide tells policyholders to collect a workers’ comp certificate from every subcontractor with employees. When no certificate turns up and the sub lacks a valid license, the sub may be treated as an employee, with premium based on its trade and the amount paid, which the guide warns can be substantial.
Auditors may ask for each sub’s name, CSLB license number, certificates covering the period worked, and the ledger or check register behind the payments. Keep those together as the work happens. Our certificate of insurance guide shows what to check on each certificate, and insurance for contractors covers the subcontract clauses that back it up.
When a worker is hurt and no policy answers
If an illegally uninsured employer does not pay, the Uninsured Employers Benefit Trust Fund within the DWC may pay the injured worker and then seek reimbursement from the employer, including liens on property. Penalties stack on top. Labor Code 3710.1 lets the Labor Commissioner issue a stop order barring employee labor until coverage is in place, and section 3722 adds $1,500 per employee when a stop order issues.
Knowingly going without coverage is a misdemeanor under section 3700.5, with a fine of at least $10,000 on a first conviction. Willful misclassification under section 226.8 carries civil penalties of $5,000 to $25,000 per violation. Settle each worker’s status and coverage before the first payment, not after the first injury.
CSLB exemption certificates and the 2028 change
Business and Professions Code section 7125 requires every CSLB licensee to keep a current certificate of workers’ comp insurance on file in the business name, or, with no employees, a statement claiming the exemption. Licensees in C-8 concrete, C-20 HVAC, C-22 asbestos abatement, C-39 roofing and D-49 tree service cannot claim it and must carry coverage even when they work alone. Under section 7125.2, a lapse in required coverage suspends the license automatically.
SB 216 originally set January 1, 2026 as the date every licensee would need coverage; SB 1455 pushed it back and restored the exemption in the meantime. CSLB’s March 2026 report to the Legislature states that under current law all licensed contractors must have proof of workers’ comp by January 1, 2028, even with no employees, and that about 100,000 licensees now hold an exemption. CSLB has also proposed narrow exemption criteria for after 2028 under SB 291; that is a proposal, not law.
A few useful answers
Common questions
Is independent contractor workers comp insurance required in California?
Not for a contractor with no employees, unless the contractor holds a C-8, C-20, C-22, C-39 or D-49 license. It becomes required with the first employee, and under current law every CSLB licensee needs it by January 1, 2028.
Can I get workers' comp for myself as a 1099 contractor through Mithril1?
You can, when an insurer accepts an owner-only policy for your trade. Not every insurer includes owners, so we request quotes from those that do and the insurer decides after reviewing your work and payroll.
Why can't roofers use the CSLB workers' comp exemption?
Section 7125 of the Business and Professions Code excludes C-39 roofing licensees from the no-employee exemption, along with concrete, HVAC, asbestos abatement and tree service licensees.
What happens at my audit if a subcontractor has no certificate?
The auditor may treat the sub as your employee if it also lacks a valid license, and charge premium on what you paid it at its trade’s rate.
Does a contract or a 1099 make someone an independent contractor?
No. The Labor Commissioner says neither one decides status; the ABC test in Labor Code 2775, or the Borello test where an exemption applies, does.