CSLB Law & Business ExamEmployment RequirementsMedium
A licensed contractor operates as a corporation and is the sole shareholder and only employee. What must this contractor do regarding workers' compensation insurance to be exempt from the coverage requirement?
- ANothing; sole shareholders are automatically exempt with no filing needed
- BRegister the exemption with the IRS instead of the CSLB
- CFile a certification of exemption based on owning 100% of the corporate stock and holding an executive officer title
- DPurchase a reduced workers' compensation policy covering only third parties
Show answer & explanationAnswer & explanation
Correct answer: C. File a certification of exemption based on owning 100% of the corporate stock and holding an executive officer title
California allows an officer or director who owns 100% (or at least 15% with certain conditions) of a corporation's stock to file a valid waiver/certification with their workers' compensation carrier and CSLB to be excluded from mandatory coverage, but this requires an affirmative filing, not automatic exemption.
Why the other options are wrong
- A. An exemption is not automatic; a formal waiver must be filed.
- B. The IRS has no role in workers' compensation exemption filings; this is a state labor/CSLB matter.
- D. There is no such reduced third-party-only policy option under this exemption rule.
Officer Workers' Comp Exemption
A corporate officer who owns the required percentage of stock may file a certification to waive workers' compensation coverage for themselves.
- Exemption is not automatic; requires a signed waiver form
- CSLB tracks these exemptions for licensing purposes
- Waiver does not extend to other employees of the corporation
Memory trick: Own it all, then file to waive it all.