What is workers’ compensation insurance?
Workers’ compensation is a no-fault insurance plan that covers lost wages and medical costs incurred by a California employee if they become injured or ill because of the job.
The purpose is to limit lawsuits against employers because of work-related injuries or illness, and to protect employees from the risk of uncovered expenses.
Who is required to have workers’ compensation in California?
Short answer: every business that has at least one employee, even if they are temporary or part-time.
The longer answer is that there are exceptions to this. For instance, if you are a sole proprietor, you are not required to carry workers’ compensation.
Also, some executives and directors of companies (if they are the sole owners) can choose to be exempt from coverage.
Finally, non-working LLC members can exclude themselves from coverage.
In each of these exceptions, coverage may still be selected, and it’s a good idea to consult with an experienced insurance agent to discuss advantages and disadvantages of that choice.
Finally, not carrying workers’ compensation insurance when you are required to do so is a crime.
It’s not as bad as robbing a bank; it’s a misdemeanor. But it’s still a big deal, and you shouldn’t risk it.
Things you should know about workers’ compensation in California.
Workers’ compensation is overseen by the State of California. Administration of the plan is handled by an insurance company. Rates are affected by risk categories, age of the company, and claims history.
A surprise to many people: there are two parts of the workers’ compensation plan.
Part 1 (or Part A) of the plan is the coverage we always think of.
It’s the part that offers unlimited coverage (in theory) to the injured employee, without determination of fault.
Here’s how Part 1 works:
An employee is a bit careless and cuts his finger on the job. He goes to the emergency room, gets it stitched, and is back to work the next day.
The boss hands him Workers’ compensation claim forms to complete, and the bill is covered by workers’ compensation insurance. Easy.
Part 2 (or Part B) of workers’ compensation insurance is for the rare times it’s not so “cut and dry.” (Pun intended).
It’s called Employer Liability Coverage. It’s meant for the instances where you as an employer can be held liable apart from workers’ compensation.
In fact, there are several situations where you can be held liable apart from workers’ compensation.
These are sometimes called the exceptions to the exclusive remedy rule. (Disclaimer: I am neither an attorney, nor the son of an attorney, and this is not legal advice.)
Simply put: you can be caught short if you don’t have enough Employer Liability Coverage.
Here’s an example:
Carl the Craftsman was as good as they come. He knew how to make excellent custom furniture, and he knew how to handle a table saw safely. He was one of the best employees in the company.
One day, Carl was cutting a piece of wood, and the saw malfunctioned. Carl ended up in the emergency room, and then surgery. Sadly, he lost most of his hand. He was no longer able to be a craftsman.
It was evident that the saw had malfunctioned. Carl collected benefits from workers’ compensation.
But he also sued the manufacturer of the table saw. The manufacturer turned around and sued Carl’s employer for not properly maintaining the saw, hence, contributing to the injury through negligence.
Carl’s employer faced huge financial liability that could only be covered by Employer Liability Coverage.
Do you have enough Part 2 coverage?
Even though Employer Liability Coverage is part of the workers’ compensation insurance policy, it has limits.
Do you know what your limits are? Are they enough? Most employers have only the minimum.
I recommend talking with an experienced business insurance agent to review your workers’ compensation insurance.
As always, if you don’t have an experienced agent who can help with this, feel free to call me.