Workers' compensation insurance in California

Carrying workers’ compensation insurance is an essential part of conducting business for many employers in California. Failure to do so not only puts the health and well-being of employees in jeopardy, but it also poses serious risks for the organization. The state may prohibit the use of employee labor until a policy is purchased, issue fines and penalties, and/or charge the employer with a criminal misdemeanor.

Is workers’ compensation mandatory in California?

California law mandates that employers carry workers’ compensation insurance (also known as “workman’s comp”) even if they have only one employee. The requirements vary by business type.

California workers’ comp insurance requirements

Generally, employers who have at least one employee are required to fulfill three basic criteria:

1. Purchase California workers’ compensation insurance.
2. Provide new hires with a pamphlet that explains their workers’ comp rights and responsibilities.
3. Display the “notice to employees” in a conspicuous area at the workplace. This poster provides information about workers’ comp coverage and where to seek medical assistance for job-related injuries and illnesses.

Should any employee suffer an injury or illness at work, the employer must then:

1. Provide the employee with a workers’ compensation claim form within one working day after the work-related injury or illness is reported.
2. Return a copy of the completed form to the employee within one working day of receipt.
3. Forward the claim form, along with the report of occupational injury or illness, to the claims administrator within one working day of receipt.
4. Authorize up to $10,000 in appropriate medical treatment within one working day of receiving the employee’s claim.
5. Provide transitional, light duty work whenever appropriate.

Employers who use a Medical Provider Network (MPN) may have additional requirements to meet.

What is the minimum workers’ comp insurance in California?

California businesses are required to purchase a workers’ compensation policy that meets the following minimums for employer liability:

• $100,000 per occurrence
• $100,000 per employee
• $500,000 total policy value

While the state mandates minimum coverage, insurers often recommend higher liability limits to help ensure adequate protection. The difference in premium costs is usually minimal.

Workers’ compensation insurance in California: How does it work?

Workers’ compensation insurance in California is essentially a trade-off between employees and their employer. Employees who suffer an on-the-job injury or a work-related illness receive certain benefits to assist them during their recovery. In return, they generally cannot sue their employer over the injury or illness.

What does workers’ compensation cover in California?

Workers’ comp insurance in California may include the following benefits:

• Medical care
  Any service reasonably necessary to treat an illness or injury may be covered, including doctor visits, hospital stays, physical therapy, lab tests, x-rays, medicines, medical equipment and travel costs. There are, however, limits on chiropractic care, physical therapy and occupational therapy.
• Temporary disability
  Employees who are unable to work because of their injury or illness may be eligible to receive up to two thirds of their regular pay every two weeks. Minimum and maximum payments are set by the state.
• Permanent disability
  An injury that causes a permanent loss of physical or mental function measurable by a doctor may entitle employees to long-term wage replacement. The specific payment amount depends on the employee’s age and occupation and the doctor’s medical reports. As with temporary disability, the state determines the minimum and maximum payments.
• Supplemental job displacement
  Employees who have a permanent disability and are not offered regular, modified or alternative work by their employer may be eligible for a nontransferable voucher worth up to $6,000. It’s designed to cover the cost of any resources required to find a new job, i.e., licenses, certifications, retraining or skill enhancements at an approved school, etc.
• Death benefits
  Payments may be made every two weeks to the spouse, children or other dependents of any employee who dies from a job-related injury or illness. The rate varies based on the number of dependents. California workers’ comp also provides a burial allowance.

How long do employees have to report an injury or illness at work in California?

California authorities recommend that employees notify their supervisors as soon as they experience an injury or illness at work, no matter how slight it may seem. Those who don’t report their injury within 30 days could lose their right to workers’ comp benefits.

The state grants more time for reporting injuries and illnesses caused by repeated exposure. The filing deadline is one year from the date an employee first notices symptoms.

How long can an employee remain on workers' comp after a claim?

Employees who are on temporary disability cease receiving payment when any one of the following happens:

• They return to work
• Their physician clears them to resume work
• Their doctor states that their injury has improved as much as physically possible

California workers’ comp settlement types

Most workers’ comp claims are resolved smoothly, but disputes can arise, particularly if the employer believes the injury or illness did not occur as a result of the work environment. In such cases, the claim may need to be escalated to the California Department of Insurance (CDI) for investigation.

Claims that go to trial usually result in one of two types of settlements depending on the circumstances:

1. Stipulations with request for reward (“stips”) – the employer agrees to pay for the injured employee’s ongoing medical treatments and/or a set amount of weekly disability payments.
2. Compromise and release – the employee receives a one-time, agreed upon payment and the case is considered resolved.

How much does workers’ compensation insurance cost in California?

Premiums vary by insurance provider based on:

• Industry
• Payroll
• Past history of work-related injuries, known as “experience modification”
• Special underwriting adjustments
• Eligibility for group or dividend programs

Cost of premiums, however, is just one factor when shopping for a California workers’ comp policy. Employers should also consider the services provided by the insurer, their familiarity with the industry, the doctors in their network and the accessibility of their claims adjusters.

How are workers' comp premiums calculated?

When calculating rates for workers’ compensation insurance, California insurers consider several factors, including:

• Payroll amount
  Large payroll figures may reflect an expansive or highly compensated workforce, which typically results in a greater risk of claims and increased insurance costs.
• Industry type
  California workers’ comp insurers operate under an “open” rating system, meaning that individual companies set rates based on their ability to cover losses and expenses in each industry classification. Certain industries involve higher risks than others, which can impact costs. Insurers must file their rates with the California Department of Insurance before issuing them.
• Job classification
  Codes developed by the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) determine risk levels associated with specific job types. Occupations with a high risk of injury generally increase insurance costs.
• Claims history
  An employer’s claims history, or “experience modification,” is calculated from payroll and loss information submitted annually by insurance companies to the WCIRB. A prior history of employee claims can lead to higher premiums.
• Other considerations
  Safety programs and discounts can also influence an employer’s final premium cost.

How can California business owners save money on workers' comp?

Classifying employees accurately reduces the risk of overpaying for coverage and incurring misclassification fines. Today’s benefits administration tools can help employers stay on top of employee classifications and control related costs.

Additionally, some employers opt for pay-as-you-go programs, which base insurance premium payments on actual payroll numbers instead of estimates. Payments are more accurate as a result, and the insurer may waive the upfront deposit, which can improve the business’s cash flow.

Where can employers get workers’ comp for their California business?

To obtain California workers’ comp policy, employers generally have three choices:

1. Purchase coverage from a licensed, independent insurance company
2. Purchase coverage from the State Compensation Insurance Fund
3. Self-insure the organization

Commercial broker-agents can help with the first two options. The third requires state approval and certain financial requirements must be met.

What are the penalties for not having workers’ comp insurance?

Liability for medical bills and lawsuits

If an employee gets hurt or sick because of work and the business is not properly insured, it may be responsible for paying all bills related to the injury or illness. The employee can also file a civil action against the employer.

Stop orders

The California Division of Labor Standards Enforcement (DLSE) can issue a stop order against California employers who are uninsured for workers’ compensation. The edict shuts down operations until the business acquires workers’ comp insurance. The DLSE can also fine organizations for noncompliance.

Imprisonment and fines

Under the California Labor Code, failure to carry workers’ compensation insurance is a misdemeanor punishable by either imprisonment in a county jail for up to a year or a fine ranging from $10,000 minimum to double the amount of the workers’ comp premium that would have been necessary to secure coverage during the illegally uninsured period. In some cases, employers may be both fined and imprisoned. California also issues penalties of up to $100,000 against illegally uninsured employers.

Reimbursement of the Uninsured Employers’ Benefit Trust Fund (UEBTF)

Employers who fail to obtain coverage, qualify as a self-insurer or pay the required workers’ comp benefits may have to reimburse California’s UEBTF if any of their employees submitted a claim to the trust fund.

Frequently asked questions about California workers’ compensation insurance

What do I risk by not having workers’ comp insurance?

Failing to carry workers’ comp when required to do so is a criminal offense. Employers who break California workers’ comp laws may be subject to:

• Fines and penalties
• Imprisonment
• Civil lawsuits
• Stop work orders preventing the use of employee labor

What’s more, if an employee is hurt on the job, the employer may be responsible for paying all related medical bills out of pocket.

Who is exempt from workers' compensation insurance in California?

As long as they are not engaged in roofing, sole proprietors in California are generally exempt from worker’s comp regulations.

Does an LLC need workers' comp in California?

Any LLC with at least one employee is required to carry workers’ comp in California. However, the executive officers and directors may choose to exclude themselves from California workers’ comp benefits if they fully own the corporation.

Do self-employed workers or a single member LLC need workers' comp in California?

California requires self-employed individuals to carry workers’ comp if they are roofers. All others are generally exempt.

This guide is informational only and intended to be used as a starting point in analyzing an employer’s workers’ compensation obligations. It is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP and its affiliates are not rendering legal or tax advice or other professional services. Please consult your personal tax or legal advisor should you have specific questions related to your circumstance.