Why Individual Workers’ Comp Insurance May Become Mandatory for California Contractors

Construction worker assisting an injured colleague on site.

There’s a chance that you’ve heard something about potential changes coming to California legislation regarding workplace safety.

In recent years, several discussions have brought about a change in the way that California businesses view workers’ comp overall. One major topic influencing this is California Assembly Bill 5 also known as AB5.

In 2019, when AB5 was signed into law, the emphasis on workers’ rights for independent contractors became very trendy. The gig economy is largely responsible for this trend, but contractors in the construction industry are feeling the impact just the same.

In this article, we will explore how recent industrial changes have made workers’ comp insurance coverage potentially mandatory for California contractors to carry with them from job to job.

What is Workers’ Compensation Insurance?

Before we discuss all the ways that workers’ comp requirements could be changing for contractors, let’s cover the fundamentals of what it is in the first place.

The main point of workers’ comp is to provide compensation for any worker who has become injured or ill as a result of the work that they do. This compensation should cover the wages that they otherwise would be making if they were operating at their usual full strength.

First aid treatment and other medical benefits are included in workers’ compensation coverage along with disability leave, job displacement benefits, and death benefits.

Workers’ comp is one form of workplace safety protection that was written into labor laws at the beginning of the 20th century. We have trade unions to thank for our legal right to safety while we work!

Who is Currently Required to Purchase Workers’ Compensation Insurance in California?

Under California Labor Code Section 3700, all California employers must provide workers’ compensation benefits to their employees.

This means that independent contractors are often expected to come up with their own coverage in the event of accidental workplace injury or illness.

The line between employee and independent contractor, however, is historically quite blurry – which means that expectations for workers’ compensation coverage for independent contractors have been historically blurry as well.

For California construction professionals, however, the expectations for carrying workers’ compensation insurance coverage have been clearly laid out by the Contractors State License Board (CSLB).

Every licensed contractor must send the CSLB a current and valid Certificate of Workers’ Compensation Insurance, or Certificate of Self-Insurance or they must file a certificate of exemption proving that they’re not required to carry a workers’ compensation insurance policy.

To date, these are the class licenses that require contractors to keep their own workers’ compensation coverage no matter what (even if they have no employees):

Which Piece of Legislation is Changing Workers’ Comp Requirements for California Contractors?

The Worker Protection Bill was introduced to amend Senate Bill 216. In January 2021, Senator Bill Dodd introduced this piece of legislation to underscore the importance of workers’ compensation for contractors.

Although it is not yet approved, it has received lots of public support including support from David De La Torre, chair of the CSLB.

If the bill passes, beginning January 1, 2025, all licensed contractors or applicants for a license will have to secure workers’ compensation coverage — regardless of license classification or number of employees.

Also beginning January 1, 2025, the CSLB will no longer approve workers’ comp exemptions. At that time, the CSLB may begin suspending active licenses or removing classifications from active license-holders until the CSLB has received a valid Certificate of Workers’ Compensation Insurance from them.

Average Cost of Workers’ Compensation Insurance

In California, the cost of workers’ comp insurance varies. The nature of the work that’s being covered, the number of employees covered, and the level of risk associated with the industry as a whole all affect the cost.

On average, workers’ comp insurance is about $2.92 per $100 of payroll in California, which is high for the U.S. (what else is new?)

But perhaps by January 2025, or whenever workers’ compensation becomes mandatory for the individual contractor, those rates could go down or additional legislative intervention will make dealing with the cost more manageable somehow.

Conclusion

The notion that workers’ compensation insurance ought to be mandatory for contractors is becoming more accepted and expected in California.

Construction professionals must keep themselves informed about compliance requirements and how they are changing in the very near future.

Contractors who prioritize worker safety and legal compliance have nothing to worry about. All they need to do is follow the guidance of the CSLB to mitigate risk and navigate the pending regulatory changes discussed in this blog post.