The day you hire your first employee in California, three legal obligations activate simultaneously: workers compensation coverage (mandatory from day one under Labor Code §3700), payroll reporting requirements to the EDD, and — if you hold a CSLB contractor license — an update to the exemption or certificate on file with the board. Most new employers understand the concept but get the sequencing wrong: they wait until the employee has been working for a week, a month, or until something goes wrong. This checklist covers what you need to do, in the right order, the day the hire is made.
Step 1: Obtain workers compensation coverage before your employee's first day
California Labor Code §3700 requires every employer to obtain and maintain workers compensation coverage. The coverage must be in force on the first day the employee works — not the first day you set up payroll, not the first official payday. The first day they perform work for pay.
Workers comp is required for every employee regardless of:
- Hours worked (full-time, part-time, and day laborers are all covered)
- Whether the employee is paid in cash (cash payment does not exempt you from the requirement)
- Whether the employee is classified as a "helper" or "apprentice"
- Whether you previously filed a workers comp exemption as a sole owner-operator (the exemption becomes void the moment you have an employee)
Insurance City's parent operation serves 4,500+ active customers across three California offices and wrote 2,080 new policies in 2025. We can bind workers comp coverage for new employers, often the same day, after reviewing payroll estimates and the classification of work being performed. Call (209) 670-1556.
Step 2: Understand what happens if you don't have coverage
Operating without workers comp in California is a criminal misdemeanor under Labor Code §3700.5. The civil and financial consequences are severe:
- Stop-work order: The Division of Labor Standards Enforcement (DLSE) can issue a stop-work order requiring you to halt all business operations until coverage is in place. A stop-work order on an active job site means zero revenue until the order is lifted.
- Civil penalty: A minimum $10,000 penalty, up to $100,000, for each period of non-compliance.
- Personal liability for all injury costs: If an employee is injured while you are uninsured, you are personally responsible for all medical costs, lost wages, temporary disability, permanent disability, and vocational rehabilitation — with no carrier to absorb those costs. A single serious injury can run $200,000 to $1,000,000 or more.
- Double benefit penalty: The court can order you to pay double the workers comp benefits the injured worker would have received had you been properly insured.
The cost of a workers comp policy for one employee in a low-hazard classification (office, retail, service) is typically $1,500 to $4,000 per year — less than the minimum penalty for a single violation.
Step 3: Report payroll to the EDD and register as an employer
Within 15 days of paying wages for the first time, California employers must register with the Employment Development Department (EDD) at edd.ca.gov. Registration establishes your EDD account for:
- Payroll taxes: California requires withholding of State Disability Insurance (SDI) and Personal Income Tax (PIT) from employee wages, and payment of Employer Training Tax (ETT) and Unemployment Insurance (UI) contributions.
- Quarterly DE 9 report: After registration, you file quarterly payroll reports showing wages paid and taxes withheld per employee.
- New employee reporting: California employers must report each new hire to the EDD within 20 days of the hire date, using the DE 34 form or the EDD online portal. This applies to regular employees and independent contractors who will earn $600 or more in a calendar year.
EDD registration and payroll reporting are separate from your workers comp carrier — the carrier does not report payroll to the EDD on your behalf. Both must be handled independently.
Step 4: Update your CSLB file if you hold a contractor license
If you hold an active CSLB contractor license and had a workers comp exemption (Certificate of Exemption — DE 542) on file as a sole owner-operator, that exemption becomes invalid the moment you hire an employee. Failing to update CSLB creates two simultaneous problems:
- You are technically operating with an invalid exemption while employing workers — a license compliance violation that CSLB can cite you for.
- If a general contractor requests a certificate of insurance from you, your broker cannot issue a valid workers comp certificate until coverage is in place and the carrier confirms it.
The correct process: get your workers comp policy first, then provide your broker the CSLB license number so the carrier can file the certificate of insurance with CSLB directly. CSLB then removes the exemption flag from your license record and shows current workers comp coverage.
Step 5: Notify your general liability carrier of the payroll change
Your GL policy has a payroll or gross-receipts figure on file. That figure is what the carrier used to calculate your current premium. Adding employees changes your payroll — which means your GL premium will be different than what the carrier originally priced.
In practice, most GL policies true up at the annual audit — but you should notify your agent when you hire your first employee so the audit estimate is accurate and there are no surprises at renewal. Underreporting payroll on a GL policy can trigger a large retroactive premium charge, or in a coverage dispute, a claim that the policy was misrepresented.
If the new employee will perform work that is different from your current GL classification — for example, you are a sole-proprietor landscaper and you hire someone to do irrigation installation, which might be rated under a different code — notify the carrier of the change in work scope as well.
Step 6: Review and update your commercial auto policy
If your employee will drive your business vehicle(s), they need to be listed as a designated driver on your commercial auto policy. An unlisted driver who causes an accident can create a coverage dispute, depending on how your policy defines listed vs. permissive use. Standard practice is to add any employee who will regularly drive a business vehicle as a named operator at the start of their employment.
If your employee will use their own personal vehicle for business purposes — running errands, making deliveries, going to job sites — you need a Hired and Non-Owned Auto (HNOA) endorsement on your commercial auto or GL policy. Without it, an accident in an employee's personal vehicle during work hours can fall through the gap between your commercial policy and their personal auto policy.
The first-employee insurance checklist (in order)
- Obtain workers comp coverage before the employee's first day — mandatory under Labor Code §3700
- Register with EDD within 15 days of first payroll payment — required for payroll tax and SDI withholding
- Report new hire to EDD within 20 days — DE 34 form or online portal
- File workers comp certificate with CSLB if you are a licensed contractor and had an exemption on file
- Notify GL carrier of payroll increase — accurate audit basis, no coverage disputes
- Add employee as named driver on commercial auto policy if they will drive any business vehicle
- Add HNOA endorsement if employee will use their own vehicle for any business purpose
What does workers comp actually cover for your employee?
Workers comp in California provides the following benefits to an injured employee:
- Medical treatment: All reasonable and necessary medical treatment for a work-related injury, with no deductible or cost-sharing from the employee
- Temporary disability (TD): Two-thirds of the employee's average weekly wage during the period they are unable to work, up to statutory maximums
- Permanent disability (PD): Benefits calculated based on the degree of permanent impairment resulting from the injury
- Vocational rehabilitation: Supplemental Job Displacement Benefits (SJDB) if the employee cannot return to their prior job due to the injury
- Death benefits: Payable to surviving dependents if the injury is fatal
The workers comp system is the exclusive remedy for employee injuries on the job in California — meaning the employee cannot sue you for damages in civil court in most circumstances, as long as you are properly insured. Without coverage, you lose that protection.
Frequently Asked Questions
Do I need workers comp for just one employee in California?
Yes. California Labor Code §3700 requires coverage from the first employee, with no minimum hours or days worked threshold. Full-time, part-time, temporary, and day laborers all count as employees under California law. Cash payment does not exempt you from the requirement.
What happens if my employee gets hurt and I don't have workers comp?
You are personally liable for all medical costs, lost wages, temporary disability, permanent disability, and death benefits — plus civil penalties up to $100,000 and possible criminal misdemeanor prosecution under Labor Code §3700.5. The court can also impose double the benefit amount the worker would have received. A single serious injury can be financially catastrophic for an uninsured employer.
Does hiring my first employee affect my GL insurance?
Yes. Your GL policy is priced on payroll or gross receipts. Adding employees increases your payroll, which will affect your GL audit at year-end. Notify your agent when you hire so your audit estimate is accurate. If the employee does different work than what is reflected in your current GL classification, report that as well to avoid classification disputes at audit or claim time.
Do I need to update my CSLB license when I hire my first employee?
Yes, if you had a workers comp exemption (DE 542) on file. The exemption becomes invalid the moment you employ someone. Get your workers comp coverage first, then have your broker or carrier file the new certificate with CSLB. An expired exemption on an active employer record is a license compliance violation.
Related reading:
- Lee esta guía en español: Primer Empleado en California
- Workers Comp Exemption for California Contractors
- Concrete & Masonry Contractor (C-8) Insurance in California
- CSLB License Application — Insurance and Bond Checklist
Insurance City Agency — 956 W. Robinhood Drive, Stockton, CA 95207 — (209) 670-1556. CA License #6003045.