California Workers’ Compensation Insurance: A Simple Guide for Employers

In California, workers’ compensation insurance is a must for most businesses. It helps cover the medical bills and lost wages for employees who get injured or sick due to their work. Whether you’re running a small business or managing a large team, it’s important to understand how workers’ comp works so you’re prepared and compliant.

Who Needs Workers’ Compensation Insurance in California?

If you have employees in California, you must have workers’ compensation insurance, even if you only have one employee. This law applies to all businesses, no matter how big or small.

Also, if your business is based in another state but you have workers in California, you still need to provide coverage for those employees.

Do Self-Employed Workers Need Workers’ Compensation?

Most self-employed people don’t need to carry workers’ compensation, but there are exceptions. Certain types of contractors, like roofers, tree service workers, and HVAC installers, are required by law to have workers’ comp, even if they don’t hire anyone else.

Even if you’re not legally required to get workers’ compensation, it’s still a good idea. If you’re hurt on the job, this insurance can help pay your medical bills and part of your lost wages. Your personal health insurance probably won’t cover work-related injuries, leaving you stuck with the costs.

If you’re self-employed, check with the California Department of Industrial Relations (DIR) to see if you need coverage.

Is Workers’ Compensation Required for Part-Time Employees?

Yes, whether an employee works part-time or full-time, they are still entitled to workers’ compensation. The number of hours they work doesn’t change their rights. If a part-time worker gets injured, they’ll be covered under the same rules as a full-time employee.

If someone claims to be an independent contractor instead of an employee, it’s up to the employer to prove they aren’t an employee.

What Does Workers’ Compensation Insurance Cover?

Workers’ compensation insurance helps pay for several things if an employee is hurt or becomes sick at work:

  • Medical Care: Covers doctor visits, hospital bills, surgeries, therapy, and prescriptions.
  • Temporary Disability Benefits: If an employee is unable to work because of an injury, workers’ comp helps replace part of their lost wages.
  • Permanent Disability Benefits: If the injury causes lasting damage, the employee may get ongoing payments for their disability.
  • Retraining: If an employee can’t return to their original job, workers’ comp may cover retraining to help them learn a new skill.
  • Death Benefits: If a worker dies due to a job-related injury, their family will receive benefits to help with funeral costs and living expenses.

Examples of Workers’ Compensation in Action:

  1. A construction worker injures their hand, and workers’ compensation covers their doctor’s bills and some of the wages they miss while recovering.
  2. A caregiver hurts their back after lifting patients, and workers’ comp helps pay for medical care and may offer retraining to help them switch to a less physically demanding role.
  3. A software developer trips and breaks their leg in the office. Workers’ compensation covers the cost of the ambulance, surgery, and follow-up care.
  4. A janitor who develops breathing problems from chemicals will get permanent disability benefits to help pay for ongoing treatment.

What Does Workers’ Compensation Insurance Not Cover?

Workers’ compensation doesn’t cover everything. Some things it doesn’t include are:

  • Injuries caused by intoxication or drug use: If an employee is drunk or using drugs when the injury happens, they might not be covered.
  • Injuries after firing or layoff: If the injury happens after an employee is fired or laid off, they’re not eligible for workers’ comp.
  • Wages for replacement workers: The employer can’t get paid for the cost of hiring someone to replace the injured worker.
  • OSHA fines: Workers’ compensation won’t cover fines related to workplace safety violations.

How Much Does Workers’ Compensation Insurance Cost in California?

The average cost for workers’ compensation in California is around $62 per month for small businesses. However, how much you’ll pay depends on several things, including:

  • How many employees you have.
  • Where your business is located (e.g., Los Angeles vs. smaller cities).
  • The type of work your employees do (high-risk jobs like construction cost more to insure).
  • Your claims history (if you’ve had previous workers’ comp claims, your premium could be higher).
  • The amount of coverage you need.

How Do You Buy Workers’ Compensation Insurance in California?

There are three main ways to buy workers’ comp in California:

  1. Private Insurance Companies: You can get a policy from a private insurer. It’s smart to compare quotes from different companies to get the best deal.
  2. State Compensation Insurance Fund (SCIF): California has a state-run program for workers’ compensation. It offers insurance for businesses of all sizes.
  3. Self-Insurance: Larger companies that have the resources to handle claims themselves can apply to the state to self-insure. This option requires approval from the California Office of Self-Insurance Plans (OSIP).

How Are Workers’ Compensation Premiums Calculated?

Insurance companies calculate premiums based on several factors:

  • Classification Rate: This reflects the type of work your employees do. Higher-risk jobs, like construction or landscaping, will have higher premiums.
  • Experience Modification Rate (EMR): This is based on how many claims your business has had in the past. If you have a history of frequent claims, you’ll pay higher premiums.
  • Payroll: The more employees you have, the higher your premium will be, since the cost is calculated based on your total payroll.

These factors together help determine your workers’ compensation premium.

How Can California Employers Save Money on Workers’ Comp?

There are several ways to reduce your workers’ comp costs:

  • Classify Employees Correctly: Make sure your employees are properly classified. For example, a desk job should be classified as office work, not as a dangerous job like construction.
  • Implement Safety Programs: A safer workplace means fewer injuries, which can help lower your premiums.
  • Pay-As-You-Go Policies: This allows you to pay premiums based on your actual payroll, which can be helpful for businesses with fluctuating employee numbers or seasonal workers.
  • Avoid Misclassification: Misclassifying employees or contractors can lead to costly fines, so it’s important to make sure you classify everyone correctly.

What Are the Penalties for Not Having Workers’ Comp Insurance?

If you don’t have workers’ compensation insurance in California, you could face serious penalties:

  • Fines and Criminal Charges: You could be fined up to $10,000 and even face jail time if you don’t have coverage.
  • Liability for Injured Workers: If an employee is hurt and you don’t have insurance, you could be held personally responsible for their medical bills and lost wages.
  • Property Liens: The state may place a lien on your business property if you don’t have workers’ compensation and your worker is injured.

Workers’ Compensation Death Benefits

If a worker dies due to a job-related injury, their family will receive death benefits. These benefits cover:

  • Burial Costs: Up to $10,000 for funeral expenses.
  • Support for Dependents: This can include ongoing payments for the worker’s dependents, such as their spouse or children. The amount depends on the number of dependents.

Workers’ Compensation Settlements in California

There are two main types of settlements for workers’ compensation claims:

  1. Stipulated Findings and Award: This involves agreeing to ongoing payments for the employee’s injury, with medical care covered as needed.
  2. Compromise and Release: This is a lump sum payment that settles the case, and the employee will no longer be eligible for further medical care related to the injury.

Having workers’ compensation insurance is not just a legal requirement in California—it’s also an important way to protect your employees and your business. By understanding how it works, what it covers, and how to manage the costs, you can ensure that your business stays compliant and your employees are cared for if they’re injured or become ill at work.

Updated 12/4/24