Workers' compensation insurance coverage for California employees is mandatory!
If a California business has employees, then the employer must obtain workers' compensation insurance. It is really that simple. The insurance coverage should take effect from the moment the first employee commences employment. If the business is a start-up, insurance coverage must be obtained before the company becomes operational with employees. A California employee is covered under the protections of the Workers' Compensation Act of the California Labor Code from the moment that he or she starts employment. Case law has also extended the protection of workers' compensation benefits for many employees for injuries that occur even before the moment of hire;for example, an injury that occurs during a job try-out or employment testing.
If an employer is not insured for workers' compensation in California, the owners, general partners, and/or significant shareholders of the business can be held personally liable for benefits owed an injured worker as well as face criminal charges.
A business may act as self-insured for workers' compensation in California-but this option is not available for small businesses
While many large and well-capitalized companies are self-insured for workers' compensation purposes, note that the requirements for a business to act as self-insured involves a burdensome compliance process that must be approved by the State of California. Permission to self-insure must be granted well before any claim of a job-related accident occurs.
The bonding, compliance, and educational requirements on an employer that wishes to obtain permission to self-insure are significant. While many of the Fortune 500-type companies are self-insured, the compliance costs for small employers, i.e. those with under 500 employees, are such that insurance is usually a much more viable option. A company must be well capitalized with significant reserves dedicated to paying workers' compensation claims to obtain self-insurance status. Audits be the state's Office of Self-Insurance are common.
The Independent Contractor Defense to Workers' Compensation Liability is Fraught with Hazard
Often employers claims that workers' compensation coverage is not needed because their workers are really independent contractors. Beware! This defense rarely succeeds and even if successful at trial, the employer will often expend tens of thousands of dollars of litigation costs to prove independent contractor status of an injured worker. Much more often, the State of California Administrative Law Judge that hears workers' compensation claims will find that the injured worker is an employee of the business where he or she worked as the time of the injury. If the worker can be hired or fired by the business, or if the business controls the details of how the work is performed, or if the business provides tools and other equipment to the employee, and if the worker works regularly at the business, the worker is most likely an employee. No single factor controls whether a worker is an employee or independent contractor but remember that California law favors a finding of employment.
But I have a contract that provides all workers are independent contractors! Does my business still need workers' compensation insurance?
Emphatically, YES! Just having an attorney or an online service draft an independent contractor agreement that must be signed by all workers as a condition of working for your business does not render your company's workers independent contractors. Generally, if the workers for your company work for any amount near the minimum wage and if your company controls the details of their work, set the hours of work, has the ability to hire or fire the workers, pay the workers by the hour or on salary, then the workers will successfully prove employment status at a workers' compensation trial. Without workers' compensation insurance, your company will have to hire an attorney to represent it at the California Workers' Compensation and pay related litigation costs that would otherwise be assumed by the insurance carrier if the employer obtained workers' compensation coverage. The cost of a defense can easily exceed $15,000 per claim-plus settlement costs of the claim itself.
My company does indeed have workers' compensation insurance but we do not report claims we suspect as bogus to our carrier to hold our rates down.
Unfortunately, this practice is all-too-common and quickly backfires as self-defeating. If the employer suspects that a claim if fraudulent or otherwise invalid, the employer must cooperate fully with its insurance carrier so that the insurance carrier can investigate the facts and circumstances of the claim and issue a denial letter if appropriate. An insurance carrier only has ninety days to decide whether to accept or deny a claim. The date of knowledge on the insurance carrier is that date that the employer is put on notice of the claim of work-related injury. If an employee shows at trial that he or she put the employer on notice of claim on a certain date, and the claim was not formally denied by the insurance carrier within 90 days, then the claim is assumed compensable under California law. The key for an employer is to cooperate fully and timely with its insurance carrier, particularly the carrier's adjusters and investigators.
To keep our premiums down, we encourage our injured employees to use state disability and then we settle with our employees directly.
Such a practice is illegal and the claim ends up costing the insurance carrier, and ultimately the employer, much more. Unfortunately, in this severe recession, ploys like this are increasingly common. Nothing is worse for a defense attorney representing the employer and insurance company to learn about such facts at a deposition of the claimant months or years after the date of injury All settlements of workers' compensation benefits must be approved by a State of California Workers' Compensation Administrative Law Judge. The judge must review the settlement to determine if the settlement is adequate from the standpoint of the injured worker. In addition, the injured worker is entitled to receive many types of notices on the types of benefits available in workers' compensation. Any private settlement will not be enforceable and the insurance carrier's timeline in which to investigate the claim will be severely compromised.
Remember that workers' compensation insurance protects employers from civil lawsuits from employees.
While some employers gripe about the "mandatory insurance" requirement of workers' compensation insurance, remember that workers' compensation requirements have been in place for about 100 years and serve to protect employers as well as employees. Before mandatory workers' compensation coverage laws were enacted, employees injured at work could sue their employers in tort for personal injury. In other words, the employee could sue the employer for a slip and fall at work just the way a patron of a restaurant or store might sue in a general court for an injury caused by negligence of the store or its personnel. If an employer today lacks workers' compensation coverage, the injured employee can elect to sue in Superior Court with a civil lawsuit- with negligence of the employer presumed as a matter of law. Defending a civil lawsuit is always an expensive undertaking for any business-and most injury suits by employees can be avoided with the purchase of workers' compensation insurance.
Brace your business for higher workers' compensation insurance costs!
Not the news that an employer wants to learn, but the truth is often bitter. While California passed into law in 2004 an employer-friendly workers' compensation reform bill that reduced benefits for employees drastically by placing a 2-year limit on temporary disability payments, effectively eliminated vocationally rehabilitation benefits, and placing limits on medical care entitlement, among other reforms, some of the reform's clout have been eroded by case law and regulatory changes. The upshot for employers will be higher workers' compensation premiums-not what your business wants in the midst of a severe worldwide economic contraction. Many employees fear layoff and want claims "on record" prior to lay off,while others, particular those in hard-hit industries such as construction, are already laid off and attempt to relate chronic conditions, such as a bad knee or hip that may need replacement, to the last employer. The costs of administering these claims are enormous
Increased workers' compensation premium rates of 40% are anticipated!
The California Workers' Compensation Insurance Rating Bureau (WCIRB) issued an informal request to the California Insurance Commissioner in April 2011 that pure premium rates increase by some 39.8%! The request is based on actuarial data analyzed by experts studying data submitted on claims by California insurance carriers. While the request was not reduced to a formal request, presumably to avoid a showdown with the elected Insurance Commissioner, who had vetoed the last two premium rate request increases, the informal request reflects what independent actuaries determine the rates level such that insurance carriers remain financially solvent. Some see that rate increase recommendation as a message to the California legislature to legislate changes to the medical treatment system in workers' compensation which is the chief cost-driver behind the rate increase recommendation.
An employer will act wisely by requesting a quote with more than one insurance carrier.
Report payroll honestly to the insurance carrier!
Workers' compensation fraud covers many categories- and not all of it is by employees with bogus claims or medical treatment mills churning out bills for services of dubious necessity. The Insurance Commissioner and District Attorneys statewide regular investigate and prosecute payroll fraud by unscrupulous employers. Workers' compensation premium rates are based upon payroll and the occupations covered (roofers are much more expensive to cover, for example than office workers) as well as claim history and the safety record of the employer. The husband-and-wife owners of a framing subcontractor in Shasta County were arrested in May 2011 with a charge of violating the California Insurance Code by underreporting $900,000 in payroll to its workers' compensation insurance carrier. A husband and wife that owned a gardening service in Orange County were arraigned in May 2011 for not reporting some $3 million in payroll to its workers' compensation carrier and charged with multiple felonies.
Additional resources provided by the author
www.dir.ca.gov/workers' comp.html, the web site for the State of California's Department of Industrial Relations Division of Workers' Compensation contains much helpful information for both employers and employees.
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