Do I need workers' compensation insurance for my family-owned business in California?


My husband and I own a small grocery store in California. We don’t have any employees, but our nephew helps out at the store. He usually comes in the afternoon and closes up for us. The other day, he told me that he had a close call at the shop – he slipped on some water and almost fell. Luckily, he caught himself and wasn’t hurt. But this got me thinking, what would happen if he did get hurt? Am I supposed to carry workers’ compensation insurance for him? What about for ourselves?


Yes, you are required to carry workers’ compensation insurance for your nephew. First off, even though your nephew is a family member, he is still considered your employee. In California, an employee is anyone that you “engage or permit to work.” As a result, you should treat him in the same way that you would treat someone that you hired through a formal job application process.

You might be thinking: Can’t we avoid getting worker’s comp insurance if we classify our nephew as an independent contractor? While it’s true that you don’t need to have workers’ comp insurance for independent contractors, it is unlikely that your nephew would qualify as an independent contractor. California law looks to how much control a company has over the individual performing the work (using a multi-factor test). In this case, because your nephew is working at your shop, under your supervision, and according to your rules, he will probably be considered an employee. For more information, see Nolo’s article Independent Contractor or Employee: How Government Agencies Make the Call.

California law requires any business with one or more employees to carry workers’ comp insurance. To comply with this law, you must have workers’ comp insurance to cover your nephew. There are serious consequences for failing to have the required workers’ comp insurance. The state of California can impose hefty fines ($1,500 or more) and can actually serve you with a “stop order,” preventing your nephew (or anyone else) from working for you until you secure the required insurance.

Since you and your husband are both owners of the business, you don’t necessarily have to include yourselves on the insurance policy. In California, workers’ compensation is optional where the partners of a partnership (or sole shareholders of a corporation) are the only ones performing work. However, there are benefits to being covered under workers’ comp. If either of you were to get injured while working at the store, you could receive benefits to pay for your medical bills and for time off work.

On a related note, because your nephew is an employee, you should make sure that you are complying with minimum wage, overtime, tax withholding, and other state and federal laws that apply to employees. To learn more, read Nolo’s article Hiring Your First Employee: 13 Things You Must Do.

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