Running a business as a single shareholder S Corporation in California comes with many responsibilities, and one of the biggest questions owners face is whether workers’ comp is required for a single shareholder S Corp in California.

For many owners, the challenge is paying steep insurance premiums when you’re the only person working in your business. It feels unnecessary, especially when margins are tight, yet overlooking the law could mean costly penalties or gaps in protection. 

Do Single Shareholder S Corps in California Need Workers’ Comp?

In most cases, yes. California generally requires workers’ compensation for corporations, but there’s a narrow exemption under Labor Code Section 3352. If you’re the sole officer and the only worker, you may qualify to opt out—but only if you meet strict criteria. 

California’s workers’ compensation laws aim to protect employees from workplace injuries, but there are exceptions for businesses like S corporations, single shareholders, and some S corporation-qualified, shareholder single-member LLCs.  

Understanding these exemptions helps you avoid paying for coverage you don’t need while staying within the law. 

Understanding California’s Workers’ Compensation Requirement 

In California, if you own an S corporation single shareholder business and you’re the only one doing the work, you usually don’t need to carry workers’ compensation insurance. The law is really about protecting employees, so if no one else works for your company, this rule typically doesn’t apply. 

That changes as soon as you hire anyone else, even part-time or temporary help, as outlined by California Department of Industrial Relations. Some business owners still choose to get coverage anyway, maybe because of client contracts or just to be safe. Payroll services like Gusto might ask for workers’ comp info during setup, which can be confusing if you qualify for an exemption. 

Key takeaway: If you’re the sole shareholder and only worker in your California S corporation single shareholder, workers’ compensation insurance probably isn’t required. But once you hire others, it becomes mandatory. 

When the Sole Shareholder Exemption Applies

California law recognizes a narrow exemption codified under Labor Code Section 3352 for corporate officers who meet strict ownership and role criteria. Here’s how it works: 

• You must own at least 10% of the corporation. 

• You must be the sole officer and the only individual performing services for the business. 

In real-world terms, most solo owners—who naturally own 100% and run the company themselves—qualify. Even when operating through an s corporation qualified shareholder single member LLC, the same criteria can apply provided the LLC has elected S-Corp tax treatment and meets the ownership threshold. 

This is why the question “is workers comp required for a single shareholder s corp in California” doesn’t have a universal yes or no answer. It depends on whether you meet these specifics. 

What to Do If No Policy Exists

If you haven’t purchased a workers’ compensation policy and you meet all exemption criteria, it’s generally true that there’s nothing to file with your insurer. No policy means nothing to exclude. However, prudent business practice calls for internal documentation, such as a signed statement affirming: 

• You are the sole shareholder and officer. 

• You are the only person performing services for the business. 

• No workers’ compensation policy has been issued. 

Keep this record with your corporate documents. It doesn’t replace a formal exclusion form, but it can be crucial in the event of an audit or compliance inquiry. 

What to Do If You Do Have a Workers’ Comp Policy 

If you decide to initiate a policy, perhaps expecting future hires, the law requires a formal exclusion for yourself. In California, this is commonly done using State Fund’s Form 10284, though other insurers have similar documents. 

Here are the essentials: 

• The officer exclusion form must be signed under penalty of perjury. 

• It must be submitted before the exclusion goes into effect. 

• You must update or resubmit the form if your company’s circumstances change, such as hiring employees or altering ownership. 

Once processed, the carrier will exclude you from coverage and premium calculation. Without it, you may continue to be charged as though you are covered, even if you qualify for exemption. 

When Coverage Becomes Mandatory 

Any exemption you hold disappears the moment you bring on any W-2 worker, regardless of part-time, temporary, or independent contractor status. At that point, workers’ compensation insurance is legally required without exception. 

Non-compliance risks are real and significant: 

• Agencies like the California Department of Industrial Relations can issue stop-work orders. 

• Penalties accrue daily and can be substantial. 

• Criminal liability is possible in severe or willful violation cases. 

If your business grows, reassess your exemption status immediately and secure coverage promptly once your role changes. 

Why Payroll Platforms Still Flag Coverage 

Automated systems like Gusto flag coverage based on basic rules. They see you issuing yourself wages and treat that as a compliance trigger. Even with a valid exemption, the system cannot determine eligibility on its own. 

To avoid perpetual coverage prompts: 

• Provide documentation of your exemption, for example, a signed internal statement or exclusion form. 

• Ensure your insurer understands and confirms your exclusion. 

• Consult your lawyer or payroll administrator to correctly configure your setup.

Key Takeaways 

• Most single-shareholder S Corporations in California can be exempt from workers’ comp
  If you are the only shareholder, officer, and worker in your business, California Labor Code Section 3352 generally allows you to exclude yourself from coverage. This means you may not be legally required to purchase a workers’ compensation policy, provided no one else performs work for the business. 

• No policy means no filing requirement, but documentation is critical
  If you do not have a workers’ comp policy, you don’t have to submit an official waiver to the state. However, keeping an internally signed statement confirming your sole ownership and worker status can help you avoid problems in the event of an audit or compliance review. 

• Existing policies require a formal exclusion form
  If you already have a workers’ compensation policy in place but qualify for the exemption, you must file an officer exclusion form with your insurer. For State Fund policyholders, this is Form 10284. This step ensures you are not paying for unnecessary coverage. 

• Hiring even one additional worker changes everything
  The moment you hire another person, whether full-time, part-time, or temporary, you are required to carry workers’ compensation insurance. Failure to do so can result in steep fines, stop-work orders, and even criminal penalties for intentional violations. 

• Payroll providers default to requiring coverage
  Services like Gusto flag the absence of workers’ comp because they cannot confirm your exemption status. Providing them with your exclusion form or internal waiver can prevent ongoing alerts and keep your payroll system accurate. 

Get Expert Help Navigating Workers’ Comp for Your S Corporation 

Workers’ compensation rules for S corporation single shareholders and S corporation qualified shareholder single-member LLCs can be confusing. At Incorporation Attorney, we help business owners understand their responsibilities and avoid paying for coverage they don’t need. 

We can guide you through the process of filing exclusion forms and maintaining the correct documentation. You will have peace of mind knowing your business remains compliant and protected under California law.