A hypothetical two person California corporation is asked for a workers compensation certificate and reads the statutes on who must be covered

What happened

What information mattered

• Labor Code section 3700 provides that every employer except the state shall secure the payment of compensation in one or more of the listed ways, including insuring with one or more insurers duly authorized to write compensation insurance in California or obtaining a certificate of consent to self-insure from the Director of Industrial Relations [1].

• The Division of Workers' Compensation states that all California employers must provide workers' compensation benefits to their employees under Labor Code section 3700 [3].

• The Division states that executive officers and directors of corporations must be included in workers' compensation coverage unless the corporation is fully owned by the directors and officers, in which case they may elect to be excluded from workers' compensation benefits [3].

• Labor Code section 3352 sets the conditions for the officer and director exclusion: ownership of at least 10 percent of the issued and outstanding stock, or at least 1 percent where a listed family member owns at least 10 percent, coverage by a health insurance policy or health care service plan, and a written waiver of rights under the chapter executed under penalty of perjury [2].

• Under section 3352 the waiver is effective upon the date of receipt and acceptance by the corporation's insurance carrier, the carrier may backdate acceptance up to 15 days, and a sole shareholder officer or director is excluded unless an election is made under section 4151(a) [2].

• In the hypothetical, the certificate is being requested by a general contractor as part of its own contracting arrangements; the sources read here describe the Labor Code and the Division's guidance and say nothing about that contractor's requirements.

The insurance question

What was decided, and by whom

• No authority decided this. It is illustrative only. The statutes and the Division of Workers' Compensation guidance described are real; the corporation, the owners, and the certificate request are invented for the walkthrough.

What cannot be generalized from this

• The Division's officer exclusion guidance turns on the corporation being fully owned by its directors and officers [3]. A different ownership structure is a different question under that same guidance.

• Entity type matters. Section 3352 addresses officers and directors, general partners and managing members, owners of professional corporations, and officers and directors of cooperative corporations under separate provisions with different conditions [2].

• This is general information about published statutes and agency guidance. It is not a compliance opinion, not a legal opinion, and not a determination that any business may or may not operate without coverage. That is a legal question for a lawyer, or a question for the Division of Workers' Compensation.

• The sources read here do not address what any contract, licensing body, or certificate holder requires. Those requirements come from documents that were not read for this walkthrough.

• Statutes and agency guidance change. Confirm the current text of sections 3700, 3352, and 4151 and the current Division of Workers' Compensation guidance before relying on the thresholds, procedures, and penalty amounts recorded here.

Source ledger

3 sources. Every citation number above resolves to a record below. Nothing here sits behind an account.

1. [1]

   California Labor Code section 3700(opens the original record on California Legislative Information (Legislative Counsel of California))

   California Legislative Information (Legislative Counsel of California)Primary lawPrimaryJurisdiction CALast checked August 31, 2026Updates: Amended by the Legislature; check leginfo for the current text each session.ID lab-3700

   What this source supports (5)

   • The section opens: Every employer except the state shall secure the payment of compensation in one or more of the following ways.
   • One listed method is being insured against liability to pay compensation by one or more insurers duly authorized to write compensation insurance in California.
   • Another listed method is securing from the Director of Industrial Relations a certificate of consent to self-insure, either as an individual employer or as one employer in a group of employers.
   • A further listed method applies to political subdivisions and public entities, which may secure a certificate of consent to self-insure against workers compensation claims.
   • The section as displayed carries the amendment note: Amended by Stats. 2002, Ch. 905, Sec. 10. Effective January 1, 2003.

   Effective: 2003-01-01

   Active
2. [2]

   California Labor Code section 3352(opens the original record on California Legislative Information (Legislative Counsel of California))

   California Legislative Information (Legislative Counsel of California)Primary lawPrimaryJurisdiction CALast checked August 31, 2026Updates: Amended by the Legislature; check leginfo for the current text each session.ID lab-3352

   What this source supports (6)

   • The section excludes from the definition of employee an officer or member of the board of directors of a quasi-public or private corporation who owns at least 10 percent of the issued and outstanding stock, or at least 1 percent if that officer's or member's parent, grandparent, sibling, spouse, or child owns at least 10 percent, who is covered by a health insurance policy or health care service plan, and who executes a written waiver of rights under the chapter stating under penalty of perjury that the person is a qualifying officer or director.
   • The waiver is effective upon the date of receipt and acceptance by the corporation's insurance carrier, and the carrier may elect to backdate the acceptance of the waiver up to 15 days prior to the date of receipt.
   • The section provides a conclusive presumption that a person who executes a waiver under that subdivision is not covered by workers compensation benefits.
   • An officer or director of a private corporation who is the sole shareholder of that corporation is excluded from the definition of employee unless the officer, director, or corporation has elected to be subject to liability for workers compensation under subdivision (a) of Section 4151.
   • The section contains many other exclusions from the definition of employee with their own conditions, including certain persons employed by a parent, spouse, or child, certain persons employed for limited hours or limited earnings, certain volunteers, general partners and managing members, owners of professional corporations, and officers and directors of cooperative corporations.
   • The section as displayed carries the note: Repealed (in Sec. 3) and added by Stats. 2017, Ch. 770, Sec. 4. (SB 189) Effective January 1, 2018. Section operative July 1, 2018, by its own provisions.

   Effective: 2018-07-01

   Active
3. [3]

   Answers to frequently asked questions about workers' compensation for employers(opens the original record on California Department of Industrial Relations, Division of Workers' Compensation)

   California Department of Industrial Relations, Division of Workers' CompensationRegulatorPrimaryJurisdiction CALast checked August 31, 2026Updates: Updated periodically by DIR; the penalty figures are statutory and can change by amendment, so re-check before each content review.ID dir-dwc-employer-faqs

   What this source supports (11)

   • DIR states that all California employers must provide workers' compensation benefits to their employees under California Labor Code Section 3700.
   • DIR states that Section 3700.5 of the California Labor Code makes failing to have workers' compensation coverage a misdemeanor punishable by either a fine of not less than $10,000 or imprisonment in the county jail for up to one year, or both.
   • DIR states that the state issues penalties of up to $100,000 against illegally uninsured employers.
   • DIR states that a stop order can be issued prohibiting the use of employee labor until coverage is obtained, and that violation of the stop order is itself punishable by imprisonment in the county jail for up to 60 days or a fine of up to $10,000, or both.
   • DIR states that additional civil penalties can reach $10,000 per employee where there is a compensable claim, or $2,000 per employee where there is no compensable claim, up to a maximum of $100,000.
   • DIR states that State Fund is a state-operated entity that exists in order to transact workers' compensation on a non-profit basis, competes with private workers' compensation insurance companies for business, and also operates as the insurer of last resort if private companies are not willing to offer workers' compensation insurance.
   • The page states that all California employers must provide workers' compensation benefits to their employees under California Labor Code Section 3700.
   • The page states that executive officers and directors of corporations must be included in workers' compensation coverage, unless the corporation is fully owned by the directors and officers, and that if the directors and officers fully own the corporation then they may elect to be excluded from workers' compensation benefits.
   • The page states that Section 3700.5 of the California Labor Code makes it a misdemeanor punishable by either a fine of not less than $10,000 or imprisonment in the county jail for up to one year, or both.
   • The page states that a stop order prohibits the use of employee labor until coverage is obtained, and that failure to observe it is a misdemeanor punishable by imprisonment in the county jail for up to 60 days, or by a fine of up to $10,000, or both.
   • The page states that penalties of up to $100,000 are issued against illegally uninsured employers, calculated as either twice the amount of unpaid premium or $1,500 per employee, whichever is greater.

   Active

Questions this example illustrates