Posted on July 31st, 2017
The True Cost Of Not Having Workers Compensation Insurance
It can cost you your business and possibly your freedom.
Every employer in California should know by now that workers compensation insurance is required by law.
What most employers don’t know is the severe penalties associated with not having workers compensation insurance.
Its unfortunate in today’s’ economy that the cost of workers compensation is very high but the cost of not having the insurance is much greater.
In fact, so much greater that it is likely the most important insurance to carry to avoid losing your business and your potentially freedom.
It can be this business decision to try to save money that can potentially cost you everything for not having the required coverage.
Misconceptions About Workers Comp
Before we get into the insane penalties and fines lets clear up several misconceptions about workers compensation law that employers have had over the years:
- Workers compensation insurance is a benefit provided at the election of the employer. No, this is not correct. “All California employers must provide workers’ compensation benefits to their employees under California Labor Code Section 3700.”
- Workers compensation insurance is not necessary if you only have one employee. Again incorrect. “If a business employs one or more employees, then it must satisfy the requirement of the law.”
- You don’t need workers compensation insurance if your employees are not doing jobs that they are likely to get injured. This is a typical misconception because there is likely much less chance of injury in an office setting whereas, certain industries like restaurants and construction companies may see more injuries per year on average. But business regardless of the industry they are in employers must have their employees covered by this insurance.
Now that we cleared some of those misconceptions up, lets get to the scary stuff.
Workers Comp Penalties
First and foremost ignorance of the law is not an excuse for not having insurance and employers will not be vindicated by simply claiming they were not aware they were required to carry workers compensation insurance for employees.
Second, although workers compensation insurance can be very expensive and rates are likely to rise with every claim, the punishment for not having the insurance is so extreme that it is not worth cost of the savings each month to operate your business in California without workers compensation insurance.
Criminal Offense?
Violations of Labor laws can be extremely costly for employers in general but with workers comp they can actually be criminal!
Failing to have workers’ compensation coverage is a criminal offense.
Section 3700.5 of the California Labor Code makes it a misdemeanor punishable by either a fine of not less than $10,000 or imprisonment in the county jail for up to one year, or both.
Additionally, the state issues penalties of up to $100,000 against illegally uninsured employers!
If an injured worker files a workers’ compensation claim that goes before the Workers’ Compensation Appeals Board and a judge finds the employer had not secured insurance as required by law, when the dispute is resolved the uninsured employer may be assessed a penalty of $10,000 per employee on the payroll at the time of injury if the worker’s case was found to be compensable, or $2,000 per employee on the payroll at the time of injury if the worker’s case was non-compensable, up to a maximum of $100,000.
[Labor Code Section 3722(d) and (f)].
Brutal huh? You can see why I always advise my clients to bite the bullet and make sure they get workers compensation insurance.
It is just not worth the risk if you get caught without it. If you cannot afford to get workers compensation insurance in California than you really just cannot afford to be in business.
Insuring Your Company
Self-insurance requires state approval, a net worth of at least $5 million, net income of $500,000 per year and posting of a security deposit.
While historically only very large companies could self-insure because of legal requirements, in recent years group self-insurance, in which several small employers in the same homogenous industry pool their workers’ compensation liabilities, has increased in popularity as an alternative to traditional coverage.
Contact your broker or the state’s Office of Self Insurance Plans for information on how to self-insure.
A self-insured employer has the option of administering its own workers’ compensation claims or contracting with a third party administrator (TPA) to provide these services.
If an employee gets hurt or sick because of work and you are not insured, you are responsible for paying all bills related to the injury or illness.
Contact the information and assistance officer at your local DWC office for further information.
You Don’t Want This Headache
You should be aware that workers’ compensation benefits are only the exclusive remedy for injuries suffered on the job when you are properly insured.
If you are illegally uninsured and an employee gets sick or hurt because of work, that employee can file a civil action against you in addition to filing a workers’ compensation claim.
If the Division of Labor Standards Enforcement (state labor commissioner) determines an employer is operating without workers’ compensation coverage, a stop order will be issued against your company (essentially shutting you down from operating).
This order prohibits the use of employee labor until coverage is obtained, and failure to observe it is a misdemeanor punishable by imprisonment in the county jail for up to 60 days, or by a fine of up to $10,000, or both.
The Division of Labor Standards Enforcement will also assess a penalty the greater of:
(1) twice the amount, you the employer would have paid in workers’ compensation premiums during the period the employer was uninsured, determined according to subdivision (c), or
(2) the sum of one thousand five hundred dollars ($1,500) per employee employed during the period the employer was uninsured. [Labor Code section 3722(b)].
Conclusion
I get a ton of calls from California employers about workers compensation issues. If they have insurance you know what I tell them? You don’t need my help, let your insurance company handle it for you that is what you pay them for.
If they don’t have insurance it gets more complicated and that is when they do need my help. If you don’t have insurance and claim is filed against you it could mean big trouble. As I spelled out in this article the penalties are extremely stiff.
While none of my clients so far have actually served time for not having insurance its a real possibility since its written in the law. But even the possibility of it is a scary thing.
If you do not have insurance and have had a claim filed against you contact me right away. Ill give you a free consultation so at least you know what to do next. I have helped hundreds of business owners in this situation and the consultation is free so you have nothing to lose.
Hi I’m John Fagerholm, the founding partner of DefendMyBiz. My mission is to defend employers like you from California’s unfair labor laws.
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