By Konstantin Huck
On March 19, 2026, the Contractors State License Board (CSLB or Board) held its first public board meeting in 2026. At this meeting, the Board, inter alia, authorized the submission of the Mandatory Report to the Legislature Regarding Workers’ Compensation Insurance Exemption pursuant to SB 291 (Grayson) (Chapter 455, Statutes of 2025), regarding the workers’ compensation insurance exemption. The bill requires the Board to “establish a process and procedure, which shall include an audit, proof, or other means to obtain evidence to verify that an applicant or licensee without an employee or employees is eligible for exemption from the workers’ compensation insurance requirement pursuant to Section 7125” and report its findings to the legislature by January 1, 2027.
Business and Professions Code section 7125 requires CSLB licensees to carry workers’ compensation insurance by January 1, 2028. Contractors without employees may file for an exemption. SB 291 introduces significant civil penalties for violators who falsely claim exemptions and requires the Board to establish a verification process.
The three-page report lists criteria a licensee must meet to qualify for an exemption and proposes a process and procedure for verifying exemption eligibility, including the presentation of required resources. The report also discusses risks and alternatives to its proposal.
To qualify for an exemption, a licensee must be an individual owner and must not have a responsible managing employee or a registered home improvement salesperson associated with the license. Additionally, some license classifications are incompatible with the exemption. Furthermore, the licensee must acknowledge workers’ compensation requirements and penalties and submit a business plan demonstrating the factual basis for exemption eligibility. Lastly, the exemption is contingent upon the payment of a filing or recertification fee to fund CSLB’s workers’ compensation enforcement.
At the meeting, CSLB’s Registrar, David Fogt, estimated about nine to ten percent of CSLB’s licensees would qualify for the exemption. CSLB proposes to form a separate Workers’ Compensation Insurance Enforcement Unit (WCEU), tasked with the initial verification process and ongoing oversight following approval. Instead of auditing all exemption renewal filings, WCEU would implement a targeted enforcement model, under which it would audit approximately five percent of exemptions annually and review consumer complaints for initial indications of potential exemption misuse. WCEU would also engage in data sharing and coordinated enforcement efforts with partner agencies.
Based on an estimated 9,000 exemptions filed per year and the associated post-approval oversight, CSLB projects that WCEU would require approximately 17 staff members. In addition to associated legal costs, CSLB identifies a need for approximately $2.8 million in additional funding. The Board recommends establishing a $500 filing and recertification fee to fund these additional costs. At the meeting, David Fogt clarified that licensees would be required to pay this recurring fee upon each license renewal every two years.
One board member highlighted that an enforcement process is essential to enable law-abiding contractors to compete fairly with non-compliant counterparts. After submitting this report to the legislature, CSLB staff now seeks a legislative author to introduce a bill implementing the exemption criteria and verification processes. The Board states this legislative change is necessary because Business and Professions Code section 7011.4 already establishes a separate enforcement unit that is responsible for unlicensed activity and the secure payment of valid and current workers’ compensation insurance. Thus, establishing the new WCEU unit, separate from the existing one, requires legislative amendments. The Board further states that establishing this specialized enforcement unit is the only effective mechanism for properly enforcing the exemption process.