As a business owner, there are many steps you will need to take when hiring employees including finding a payroll system that works for your business, drafting an employee handbook outlining your business’ policies and procedures, and purchasing workers compensation insurance. Some of these steps, like purchasing workers compensation insurance, may seem insignificant or something that can be put off but they are critical to avoiding government fines, costly audits, and being left with a financial burden if an employee is injured on the job. To help you better understand what your workers compensation policy means for your business, we’ve provided a brief explanation.
What is Workers Compensation?
Workers compensation is an insurance policy an employer purchases that covers the medical costs and wages when an employee is injured at work during the ordinary course of business. In addition, it’s important to note that workers compensation policies may not cover injuries sustained by employees if they are caused by gross negligence or intentional acts by other employees.
This policy provides security not only for employees by ensuring that they will be financially compensated for their injuries but also employers as this becomes the employee’s exclusive remedy. This meaning that an employee that takes advantage of workers compensation payments cannot sue their employer for the injury they sustained at work, regardless of fault of the case unless the injury was caused by an intentional act. The cost of this insurance varies depending on the industry you’re in and the typical risks associated with the employees’ job duties throughout their workday. For example, employees operating and working near forklifts are linked to a high number of on-the-job injuries each year. As a result, manufacturing, warehousing, and retail businesses that utilize forklifts face higher insurance premiums for their workers compensation policies.
In the unfortunate event that an employee is killed while on the job, workers compensation also provides death benefits to their spouse, children, and dependents. This includes up to $10,000 in burial expenses and payments to minor dependents at the total temporary disability rate. These payments continue until the minor turns 18 years old.
What do I Need to Do to Provide Workers Compensation?
Before you hire your first employee, you’ll need to get a workers compensation policy in place. All businesses in California, no matter how small, must purchase a workers compensation policy for their employees. Businesses that fail to do so face significant government fines and the possibility of a workers compensation audit. As a Californian employer, you have the option to purchase a policy from a private insurance broker or from the State Compensation Insurance Fund. As a business owner, you will want to look at your options, the rates based on your business area, and what each option covers to determine which policy is best for you. Larger businesses that satisfy certain financial requirements have the option to self-insure, meaning that they do not purchase policies outright, but remain responsible for any costs and wages resulting from workplace injuries.
It is important to keep good records regarding any injuries that occur in the workplace in the event that an employee challenges the workers compensation decision or the benefits they receive. While they are technically arguing these details with the insurance company or state fund (unless you are self-insured), you will be responsible for providing timely and accurate information regarding your workplace, training protocols, standard processes and procedures, and details surrounding the event itself.
Note that independent contractors are not covered under workers compensation. However, you should be very clear whether you’re hiring someone as an employee or independent contractor. If you’re unsure of the difference, call our office to schedule a consultation. Many workers compensation audits occur because a business has been trying to label employees as independent contractors to avoid paying for workers compensation. An audit finding that someone is an employee means your business will owe back payments on insurance as well as fines.
If you’re looking for solid business legal advice, reach out to DeAnn Chase and her team at Chase Law Group, P.C. Whether you’re just starting your new business, buying a franchise, or rapidly growing, she can help you navigate the different decisions and complex regulations businesses face. Workers compensation can get complex when determining whether someone is eligible and what benefits they can receive. Having someone knowledgeable on your side can help you avoid costly mistakes. Learn more by calling (310) 545-7700 to set up a consultation.