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Workers’ compensation insurance protects both the employer and employee in the event of work-related injury or illness
Many California small businesses do not realize that if they have even one employee, then they are required to maintain workers’ compensation insurance, even if that employee is just temporary. Even out-of-state employers may be required to maintain workers’ compensation insurance if they have an employee who regularly works in California, or a contract of employment is entered into in California. Sole proprietorships and businesses without any employees are generally not required to have workers’ compensation coverage.
Important Tip In starting up a small business, it is easy to forget about small things like worker's compensation. Be careful. The consequences of failing to carry workers’ compensation insurance are serious. The California Division of Labor Standards Enforcement (“DLSE”) has the power to issue a “stop order,” which prohibits a business from using employee labor until workers’ compensation insurance is obtained. Failure to observe a stop order is a misdemeanor that can result in up to 60 days in jail, and/or a fine up to $10,000.
What is workers’ compensation insurance and how does the workers’ compensation program work? In California, the law establishes an exchange between employers and employees: employers are required to maintain insurance that will provide benefits – such as medical care and disability benefits – to employees who become sick or injured because of work (regardless of who is at fault). In return, employees are prevented from suing employers over those injuries.
Workers’ compensation insurance is not sold by the state, but rather by private insurers. Insurance premium rates depend on the level of risk a claim will be made against your business. Relevant factors include the type of work your business is engaged in, your company’s past history of work-related injuries, and payroll, among others.
It is important to remember that employees cannot pay for workers’ compensation insurance. It must be paid for by the employer, and is considered by California to be a cost of doing business.
When starting up your business, also bear in mind that employers must post a notice in the work place that sets forth information about your company’s workers’ compensation coverage. Your insurer can provide you with a copy of the required posting notice. In addition, your insurer can provide you with the claim form that must be filled out in the event that an employee becomes sick or injured on the job.
Don’t put your business at risk by operating without required workers’ compensation insurance. If your company has employees, even temporary ones, then be sure to obtain coverage. Remember – the best way to avoid legal problems is to adopt a preventative approach that emphasizes legal compliance – rather than waiting until a claim arises to address legal issues.
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