Workers' Compensation

Questions and Answers

For Employers

Q. Do I need to have workers' compensation insurance?
A. Yes. Every California employer using employee labor, including family members, must purchase Workers' Compensation Insurance. If you fail to have Workers' Compensation Insurance for your employees, it can be expensive as the DLSE is required to issue and serve a stop order / penalty assessment prohibiting further use of employee labor until you purchase Workers' Compensation Insurance. The penalty assessed for failure to have Workers' Compensation Insurance is $1,500 per employee employed at the time the citation is issued. However, there are exceptions for partnerships, if the only persons performing labor are the partners and corporations where the corporate officers are the sole shareholders; in which case, the corporation, officers and directors come under the Workers' Compensation provisions only by election.

Out-of-state employers may need workers' compensation coverage if an employee is regularly employed in California or a contract of employment is entered into here.
Q. My niece helps in my business for a few hours a day, but I don't consider her an employee. Is that correct?
A. No. Under the labor law she is considered an employee. An employee is defined as someone you engage or permit to work. Even though your niece is part of your family, she is considered an employee and you, as the employer, must provide Workers' Compensation Insurance to cover her in case of a work - related injury. In addition, you are also required to pay the minimum wage unless the employee is your spouse, parent or child and you are a sole proprietor or partnership. Corporations do not have children and therefore, no family relationship to the officers of the corporation can be exempt from these requirements.
Q. I employ persons classified as independent contractors. What obligations do I have to purchase Workers' Compensation Insurance or comply with other labor laws?
A. Employers often improperly classify their employees as independent contractors to avoid paying payroll taxes, minimum wage or overtime, or complying with other wage and hour requirements such as providing meal periods and rest breaks, etc. Additionally, employers do not have to cover independent contractors under Workers' Compensation Insurance. However, because potential liabilities and penalties are significant it is important that each working relationship be thoroughly researched and analyzed before classifying an individual as an independent contractor and not an employee. You should understand that the DLSE presumes that the worker is an employee. However, the actual determination of whether a worker is an employee or independent contractor depends upon a number of factors which must be considered. Consequently, it is necessary to closely examine the facts of each relationship and then apply the law to those facts. The most significant factor to be considered is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker, the work to be done and the manner and means in which it is performed.
Q. My spouse and I are the sole owners of our business. We have no employees. Are we required to obtain workers' compensation coverage?
A. Generally, coverage for sole owners is optional. You would, however, need to have workers' compensation coverage for any employee you may hire, even if it's just one employee, and even if it's just temporary employment. You should consult with your attorney, insurance agent or broker, or carrier regarding the specifics of your situation and your options.
Q. Are executive officers or directors of the company covered under its workers' compensation policy?
A. Generally, all employees of the company, as legally defined, including corporate officers and directors, must be included in the policy unless they are the sole owners of the firm. In the case of sole owners, they may elect not to be covered. Several sections of the California Labor Code must be considered to answer this question. You should consult with your attorney, insurance agent or broker, or your carrier regarding the specifics of your situation.
Q. Where do I get workers' compensation insurance?
A. You can purchase workers' compensation insurance coverage through an agent or a broker from any of the privately licensed insurers authorized to write policies in California. You can find a list of authorized insurers on the California Department of Insurance web site.

If you can't find an insurer willing to cover your business, the State Compensation Insurance Fund (State Fund) is required to provide you with coverage.

If you belong to a trade association you might want to check with it first - some trade groups negotiate special rates for members. Your local chamber of commerce may also be a source of good advice.
Q. What about self insurance?
A. Self insurance requires state approval, a net worth of at least $5 million, net income of $500,000 per year and posting of a security deposit. While historically only very large companies could self-insure because of legal requirements, in recent years group self insurance, in which several small employers in the same homogenous industry pool their workers' compensation liabilities, has increased in popularity as an alternative to traditional coverage. Contact your broker or the state's Office of Self Insurance Plans for information on how to self insure.

A self insured employer has the option of administering its own workers' compensation claims or contracting with a third party administrator (TPA) to provide these services.
Q. How much does workers' compensation insurance cost?
A. Workers' compensation insurance premium rates are not regulated by the state. While the Workers' Compensation Insurance Rating Bureau - the licensed statistical agent for the state insurance commissioner - issues recommended rates and carriers must file their rates with the California Department of Insurance, rates can vary from carrier to carrier. Like any good consumer, you should shop around for a carrier that best meets your needs. Cost is one consideration, but there are other factors to look at: the services provided, ease of access to the claims adjusters, their familiarity with your industry, the doctors in their network, etc. If you have a broker or agent, he or she should be able to give you expert guidance.
Q. What determines how much I'll pay for my premiums?
A. A number of factors go into determining the annual premium your insurance carrier will charge. These include your industry classification, your company's past history of work related injuries (known as your experience modification), your payroll, any special underwriting adjustments such as use of a certified health care organization, and any special group or dividend programs you may be eligible to receive.
Q. Can my employees help pay for my workers' compensation insurance?
A. No. Workers' compensation insurance is part of your cost of doing business. An employer cannot ask employees to help pay the insurance premium.
Q. What are my posting requirements?
A. You must post the "notice to employees" poster in a conspicuous place at the work site. This poster provides employees with information on your workers' compensation coverage and where to get medical care for work injuries. Failure to post this notice is a misdemeanor. Contact your insurer to get the posting notice and the required information that must be included on it.
Q. Where do I get the claim forms I need to give my employees if they get sick or hurt because of work?
A. Your workers' compensation claims administrator - generally your insurance carrier or third party administrator if you are self insured and have one - provides the claim form in the quantities you need.
Q. What can I do if I think an employee's workers' compensation claim is not valid?
A. You should report that opinion to your workers' comp claims administrator. Tell them all the facts you know, any witnesses you may be aware of, and the people they should talk to. Follow up any phone or verbal report with a letter.
Q. I received a notice of hearing on a claim for a person I never heard of and didn't hire. What should I do?
A. Inform your claims administrator and follow up with a letter.
Q. Isn't workers' comp fraud a crime? Who investigates these cases?
A. Yes, workers' compensation fraud is a crime and it can come in many forms: a worker saying they were injured on the job when their injury really occurred while skiing; an employer saying their employees work at desk jobs when they're really construction laborers; a medical provider billing for six treatments on an injured worker when they only provided two, etc. These are just a few examples of fraud in the workers' comp system. Fraud is a serious problem and should be reported to the California Department of Insurance (CDI) for investigation. The CDI has a fraud page on its Web site. The CDI works closely with other agencies to investigate possible fraud cases and also works with local district attorneys offices to prosecute those caught violating the law.
Q. What happens if I'm uninsured and an employee is injured?
A. Failing to have workers' compensation coverage is a criminal offense. The California Labor Code makes it a misdemeanor punishable by either a fine of up to $10,000 or imprisonment in the county jail for up to one year, or both. Additionally, the state issues penalties of up to $100,000 against illegally uninsured employers.

If an employee gets hurt or sick because of work and you are not insured, you are responsible for paying all bills related to the injury or illness. You should be aware that workers' compensation benefits are only the exclusive remedy for injuries suffered on the job when you are properly insured. If you are illegally uninsured and an employee gets sick or hurt because of work, that employee can file a civil action against you in addition to filing a workers' compensation claim.
Q. What is the Uninsured Employers' Benefit Trust Fund?
A. The Uninsured Employer's Benefit Trust Fund (UEBTF) is a special unit within the Division of Workers' Compensation that may pay benefits to injured workers who get hurt or ill while working for an illegally uninsured employer. The UEBTF pursues reimbursement of expenditures from the responsible employer through all available avenues, including filing liens against their property.
Q. Can I be fined for not carrying workers' compensation insurance?
A. Yes, you can be fined and more. If the Division of Labor Standards Enforcement (state labor commissioner) determines an employer is operating without workers' compensation coverage, a stop order will be issued. This order prohibits the use of employee labor until coverage is obtained, and failure to observe it is a misdemeanor punishable by imprisonment in the county jail for up to 60 days, or by a fine of up to $10,000, or both. The Division of Labor Standards Enforcement will also assess a penalty of $1,000 per employee on the payroll at the time the stop order is issued and served, up to $100,000.

Additionally, if an injured worker files a workers' compensation claim that goes before the Workers' Compensation Appeals Board and a judge finds the employer had not secured insurance as required by law, when the dispute is resolved the uninsured employer may be assessed a penalty of $10,000 per employee on the payroll at the time of injury if the worker's case was found to be compensable, or $2,000 per employee on the payroll at the time of injury if the worker's case was non-compensable, up to a maximum of $100,000.

Finally, as noted in answer to a previous question, failure to secure workers' compensation insurance is a misdemeanor punishable by imprisonment in the county jail for up to one year, or by a fine of up to ten thousand dollars ($10,000) or by both that imprisonment and fine.
Q. How do I get proof of coverage?
A. Request a certificate of insurance from your insurance carrier.
Q. Where can I report an employer for not carrying workers' compensation insurance?
A. You may report an uninsured employer to the nearest office of the Division of Labor Standards Enforcement.

This material was prepared by the California Department of Industrial Relations



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