Workers' compensation insurance pays for injuries or illnesses suffered by employees of a business while engaged in normal business practices. For example, a roofer may become injured during a job by falling from the roof. In California, workers' compensation is required for all businesses with one or more employees. (Roofers must carry this insurance even without employees.) This insurance is generally optional for sole proprietors.
Operating without workers' compensation insurance is a misdemeanor in California, according to California Labor Code section 3700.5. This crime is punishable by fines of up to $10,000 or imprisonment in a county jail for up to one year, or both.
The state can impose fines on your business in addition to the criminal charges. Fines can range up to $100,000 for an illegally uninsured business.
If California's Division of Labor Standards Enforcement determines your business is operating illegally without workers' compensation insurance, it can issue a stop order against your business and prohibit you from using employee labor until insurance is secured. Failure to act on the stop order is punishable by imprisonment in a county jail up to 60 days, or by a fine up to $10,000, or both.
California Labor Code section 3722(a) states the Division of Labor Standards Enforcement will impose a penalty of $1,000 per employee on payroll at the time a stop order is issued and served, up to $100,000.
Workers Compensation Appeals Board
If a claim goes before the Workers' Compensation Appeals Board and your business is found to be illegally uninsured, you may be assessed further fines up to $10,000 per employee on payroll at the time of injury, with a maximum penalty of $100,000.
In addition to all the fines and penalties, your business is fully liable for all medical costs and bills relating to your employee's illness or injury if you operate without workers' compensation insurance.