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I am a California Small Business Owner
Am I Required to have Workers' Compensation Insurance?


Some Background - What is Workers Comp Insurance All About?

Workers' Compensation Insurance is a social bargain that was struck in California (and in most other states) at the beginning of the twentieth century. As with all bargains, there is a trade-off involved. Employers are required to maintain no-fault insurance against injuries and work-related illnesses that occur in the work place, and in exchange employees agree not to sue their employers should such injuries or work-related illnesses occur. In California, the workers' compensation system is managed by the Division of Workers' Compensation, which oversees the administration of claims and operates a workers' compensation court system that helps resolve disputes. Workers' compensation benefits include medical care, temporary disability benefits, permanent disability benefits, supplemental job displacement benefits (for necessary retraining or skill enhancement), and death benefits.

Am I Required to Have Workers Comp Insurance?

Yes. California law requires that all California employers maintain workers' compensation insurance, even if you have only one employee, and even if that employee works part-time or is temporary. The only exception is for a sole proprietor of a business who is also the only employee of the business. (However, in the special case of roofers, even a sole proprietor with no other employees is required to have workers' compensation insurance). An out-of-state employer may be required to maintain workers' comp insurance if an employee is regularly employed in California or if a contract to engage in employment is entered into in California.
 
What Happens if I Don't Have Workers Comp Insurance?

The penalties can be severe. Failure to have workers' comp insurance is a criminal offense, punishable by a fine of not less than $10///,000, imprisonment of up to one year, or both. In addition to criminal penalties, the state may issue fines of up to $100,000 against employers who illegally fail to provide workers' comp insurance. The state may also issue a stop order, preventing an uninsured employer from using workers until proper insurance is obtained. Finally, if your employee is injured or gets sick because of work and the employer is not insured, the employer may be required to pay all bills related to the injury or illness. And if an employee goes before the Workers' Compensation Appeals Board and is found to have been injured when the employer did not have the required insurance, the Board may order additional penalties of $2,000 per uninsured employee. In short, the penalties for failure to maintain workers' compensation insurance are serious. Please don't place your business at risk by failing to be insured.

Where Do I Get Workers' Comp Insurance?

You can purchase workers' compensation through an insurance broker or agent from any of the privately licensed insurance companies authorized to sell workers' comp insurance in California. A list of authorized insurers can be found at the California Department of Insurance website, or you can contact me for information on insurers and with other questions you may have about coverage. In analyzing different policies from different insurers you will want to consider costs, of course, but also services provided, ease of access to adjusters and handling of claims, the insurer's familiarity with your industry, the doctors in its network, and other factors. An agent can help you weigh all of these factors. You will find my contact information at the bottom of this post. If you cannot find an insurer who is willing to cover your business, the State Compensation Insurance Fund is an insurer of last resort and is required to provide you with coverage. It is theoretically possible to self-insure, but the standards are strict (net worth of at least $5,000,000, net income of at least $500,000 per year, and a security deposit) and for practical purposes self-insurance is out of the reach of most small businesses. In some cases, groups of similarly situated employers in the same business line can pool resources to self-insure, but administrative requirements (in addition to financial requirements) present real difficulties to group self-insurance.  

Conclusion

Unless you are the sole proprietor of your business and you are its only employee, you must maintain workers' compensation insurance. Don't try to operate without it. In shopping around for coverage, do your due diligence. Check with friends and colleagues who operate small businesses, especially in the same field as your own. If you are a member of a trade association or a chamber of commerce, those groups might have some suggestions for you. You can also find useful information on various website set up by the California Department of Insurance. And, of course, feel free to contact me. I am a licensed California insurance agent and can help you find the workers' compensation coverage that best suits you and your employees.

Alex Pfeifer
Pfeifer Insurance Brokers
650 762-8070
alex@pfeiferins.com

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