WORKERS’ COMPENSATION EXEMPTION

Generally, if the business is a sole proprietorship, single-member LLC, or

partnership, and has no employee, California law usually doesn’t require you to
have a workers’ comp policy. An exception here is roofers. If you’re a roofer,
you’re required to have workers’ comp even if your business doesn’t have
employees due to the nature of risk involved. While sole proprietors and S
Corporation have no employees, they are not precluded in getting a workers’
compensation voluntarily. If a sole proprietor has no employees but obtains a
workers' compensation policy, the sole proprietor is automatically included in
that policy. The sole proprietor may elect to have him or her excluded from that
coverage by filing a proper form with the insurance carrier. That coverage
election form may be obtained from the insurance carrier. This may occur
when the sole proprietor is hiring subcontractors but does not wish to be
included on the policy.

The exemption does not automatically apply to these businesses. A detailed

requirement is provided by the Business and Profession Code to wit:

BUSINESS AND PROFESSIONS CODE - BPC

DIVISION 3. PROFESSIONS AND VOCATIONS GENERALLY
[5000 - 9998.11]
ARTICLE 7.5. Workers’ Compensation Insurance Reports
[7125 - 7127]
( Heading of Article 7.5 amended by Stats. 1991, Ch. 1160,
Sec. 37. )7125. 1

(a) Except as provided in subdivision (b), the board shall

require as a condition precedent to the issuance,
reinstatement, reactivation, renewal, or continued
maintenance of a license, that the applicant or licensee have
on file at all times a current and valid Certificate of Workers’
Compensation Insurance or Certification of Self-Insurance
in the applicant’s or licensee’s business name. A Certificate
of Workers’ Compensation Insurance shall be issued and
filed, electronically or otherwise, by an insurer duly licensed
to write workers’ compensation insurance in this state. A
Certification of Self-Insurance shall be issued and filed by
the Director of Industrial Relations. If reciprocity conditions
exist, as provided in Section 3600.5 of the Labor Code, the

1
(Amended (as amended by Stats. 2011, Ch. 686, Sec. 1) by Stats. 2012, Ch. 389, Sec. 1. (AB 2219) Effective January 1, 2013.)
 registrar shall require the information deemed necessary to
ensure compliance with this section.
(b) This section does not apply to an applicant or licensee
who meets both of the following conditions:
(1) Has no employees provided that he or she files a
statement with the board on a form prescribed by the
registrar prior to the issuance, reinstatement,
reactivation, or continued maintenance of a license,
certifying that he or she does not employ any person in
any manner so as to become subject to the workers’
compensation laws of California or is not otherwise
required to provide for workers’ compensation insurance
coverage under California law.

For corporation which has a different business structure mentioned above, an

exemption is also possible as provided by AB 2883. Under the said law,
corporate officers can also be eligible for exclusion if they own at least 1
percent of the stock and if their parent, grandparent, sibling, spouse, or child
owns at least 10 percent of stock.

A Notice2 is issued by the Department of Insurance thereafter clarifying the

changes made by the AB 2883 stating that:

“..officers and members of boards of directors while

rendering actual service for the corporation for pay will be
covered employees unless the officer or member of the board
of directors owns at least 15 percent of the issued and
outstanding stock of corporation and executes a written
waiver of his or her rights under the Labor Code stating
under penalty of perjury that the person is a qualifying
officer or director. Similarly, working members of a
partnership or limited liability company receiving wages
irrespective of profits from the partnership or limited liability
company will be covered employees unless the individual is a
general partner of a partnership or a managing member of a
limited liability company and executes a written waiver of his
or her rights under the Labor Code stating under penalty of
perjury that the person is a qualifying general partner or
managing member. The law would also expand the scope of
the exception to apply to an owner of a professional

2
NOTICE TO ALL INSURERS, ADMITTED TO WRITE OR WRITING WORKERS’ COMPENSATION COVERAGES IN CALIFORNIA, REGARDING CHANGES
IN DEFINITIONS OF EMPLOYEE AND EXCLUSIONS TO THE DEFINITION OF EMPLOYEE (OFFICERS AND MEMBERS OF BOARDS OF DIRECTORS, AND
PARTNERS) EFFECTIVE JANUARY 1, 2017 AS A RESULT OF ENACTMENT OF AB 2883
 corporation who is a practitioner rendering the professional
services for which the corporation is organized, and who
waives their rights under the laws governing workers’ comp
and stating they are covered by a health insurance policy.
The law provides that an insurance carrier, agent or broker
is not required to investigate, verify, or confirm the accuracy
of the facts contained in the waiver. The bill would make
other changes relating to the execution and acceptance of
waivers. Sole shareholders of corporations (private or
professional) are automatically excluded. No waiver is
necessary, but they can be included for coverage.”

Unlike with other states, with California Law, the owner has to execute an
affidavit indicating its waiver and acknowledgement and take it to be notarized
to get a workers’ comp exemption for sole proprietorship.