California requires workers’ comp for every employer, no exceptions. If you have even one employee on your crew, you need coverage. Operating without it is a criminal offense and can result in penalties up to $100,000 plus the cost of any claims that come in while you’re uninsured. For contractors, the CSLB can also suspend or revoke your license if you don’t carry active coverage.

You have two main options for getting a policy. The State Compensation Insurance Fund will cover any employer regardless of claims history. Private carriers often offer better rates if you have a clean track record and solid safety practices. Shop around, but make sure whatever carrier you pick understands construction and trades work because classification codes drive your costs.

Classification codes determine your premium rate. A general laborer carries a different rate than an electrician, and both are different from office staff. If your crew does multiple types of work, they may need to be split across codes. Getting this wrong means you’re either overpaying or underpaying. Underpaying gets corrected during your annual premium audit, usually with additional charges.

The annual audit is where your books really matter. Your workers’ comp carrier audits your payroll records each year to make sure the premium you paid matches your actual payroll. If your records are messy or incomplete, the auditor will estimate, and estimates almost always go against you. Clean payroll records broken out by classification code give you the best chance of an accurate and fair result.

Subcontractor documentation is another piece people miss. If you hire subs who don’t carry their own workers’ comp, your carrier may add their payments to your payroll for premium calculation purposes. That means you’re paying workers’ comp on their labor as if they were your employees. Always get certificates of insurance from every sub before they start work and keep those certificates on file.

The 1099 vs W-2 question comes up constantly with workers’ comp. California is strict about employee classification under AB 5. If someone works set hours on your jobs using your tools and you control how the work gets done, they’re likely an employee regardless of what your agreement says. Misclassifying workers doesn’t just create tax problems. It creates workers’ comp problems, and the penalties stack on top of each other.

Track your payroll by job and by classification code in your accounting software. This makes audit time straightforward instead of stressful. When your carrier asks for payroll broken out by code, you pull a report instead of spending a weekend digging through bank statements trying to piece together who got paid what.

Pay-as-you-go workers’ comp programs are worth looking into. Instead of paying a large upfront premium based on estimated payroll, you pay based on actual payroll each pay period. This helps with cash flow and reduces the chance of a big adjustment at audit time. Many payroll providers integrate with pay-as-you-go programs directly.

If your books aren’t in shape for an upcoming audit, address that before the auditor shows up. Accurate bookkeeping for trades businesses is the foundation for managing workers’ comp costs and avoiding surprise bills. The businesses that get hit hardest during audits are the ones who can’t produce clean records when asked.