Think You Don’t Need Workers’ Compensation? Think Again.

Carmen Campo | Mar 6, 2020 | minute read

Workers’ compensation insurance is critical in protecting yourself as a business owner. In California alone, over 23,000 workers’ comp claims are made every year, resulting in payouts totaling near 1 billion dollars annually. 

Of course, having these policies isn’t just about protecting yourself should someone get hurt; in most cases, you’re legally required to have this coverage. Let’s take a look at exactly when you’re required to carry workers’ compensation insurance in California.

When You Need to Take Out a Workers’ Comp Policy in California

California has some of the strictest labor laws in the United States. As such, there’s no surprise that it requires employers to have workers’ compensation coverage even when they have few employees. And just how few employees might surprise you.

In California, the moment you employ even one person, you’re required to have workers’ comp insurance. It doesn’t matter how many hours the employee works each week either. Even if they only come in for an hour or so, if they’re working for you in any capacity, you need a policy.

That alone can feel like a bit of a shock given that in other states, this requirement doesn’t usually kick in until there are multiple full-time employees. But there’s another surprise still coming: depending on your line of work, you may need a policy even if you have no employees at all. This only applies to a single industry, though: roofing.

Understanding Who Qualifies as an Employee

This might seem like it should be straightforward, but in California, who is and isn’t an employee can get confusing—and figuring it out will only get more difficult after the first of the year. Still, knowing this is critical to having the right workers’ comp coverage. 

When Do Family Members Count as Employees?

If the family member is merely helping out at the business and isn’t paid, they may not count as an employee in the eyes of the law. That doesn’t mean you should skip workers’ comp coverage. Should they be injured while working for your business, you’ll still be held liable for their medical bills, lost wages at their primary job, and even for their long-term care should the injury be serious. This can total tens of thousands of dollars on the low end and skyrocket into millions of dollars for debilitating injuries, so employing them and having a policy is [NH1] [SBM2] the cheaper route.

Do Independent Contractors Ever Count as Employees?

This is an interesting question, not just because it matters when it comes to your workers’ comp coverage, but because the definition of an independent contractor in California is somewhat up in the air at the moment. Assembly Bill 5 was signed into law this year, set to take effect on January 1. But there are strong efforts in place to repeal it shortly thereafter. And even if it does not get repealed, the guidelines on who’s an employee and who is an independent contractor isn't very clear

Generally speaking, employees are those you file a W-2 tax form for. Independent contractors are those you file a 1099 tax form for, and they don’t need coverage under your workers’ compensation policy because they’re not employees of your business. But there are cases where this isn’t true. Business owners should consult with an attorney to determine what their liability is and how to classify those they work with.

Even if someone is correctly classified as an independent contractor, there are risks. Just like with family, if they’re injured at your place of business, you could still be held liable. It’s a good idea to require any independent contractors you work with to carry their own workers’ compensation insurance if they’ll be working on-site at your place of business. This protects you in the case of an injury and also prevents you from needing to pay higher premiums.

When Do Executive Officers and Directors Count as Employees?

Workers’ compensation requirements extend to executive officers and directors of corporations. The exception to this is if the corporation is fully owned by these directors and officers. If this is the case, they can opt to exclude themselves from the policy. Even if the officers and directors own the business in full, having a policy on themselves offers important protection. 

Your Requirements Extend Beyond Just Carrying a Policy

Knowing when you need to carry a worker’s compensation insurance policy in California is just the start of fulfilling your obligations as an employer. So, what else do you need to know?

You need to make sure any policy you are considering offers the benefits required by California law. These are:

  • Medical care, including:
    • Hospital services
    • Doctor visits
    • Medications
    • Medical equipment
    • Lab tests
    • Diagnostic imaging
  • Temporary disability payments to cover lost wages during the recovery period. In general, this will be calculated as two-thirds of the pre-tax wage and extend up to 104 weeks.
  • Permanent disability payments to cover lost wages should the employee be injured to the point of no longer being able to work. The amount that must be paid and the duration of this benefit varies based on the type of disability.
  • Retraining payments to help the employee learn how to perform a new job if they’re physically unable to return to their previous role.
  • Death benefits to be paid to their dependents if they die as a result of a work-related injury or illness. 

If all of this sounds a little complicated, don’t worry. The well-versed agents at Leap | Carpenter | Kemps Insurance Agency know insurance, risk management, and have extensive experience with experience modification management. And they’re here to help. 

What Leap | Carpenter | Kemps Insurance Agency Can Do for You

At LCK, we know Workers’ Compensation Insurance. For decades, we’ve helped companies just like yours navigate the workers’ compensation landscape in California. Contact us today to see how we can help you.

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About The Author

Carmen Campo is a Commercial Insurance & Risk Advisor who offers her clients the highest level of service.

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