Who Can Be Excluded From Workers’ Compensation Insurance?

California law provides that businesses must carry workers’ compensation insurance for their employees, and there are sometimes severe criminal and civil penalties for failure to comply with this requirement. Moreover, workers’ compensation is designed to provide remuneration to those sustaining work-related injuries. However, there are some exceptions to both the requirement that all employees must be covered by workers’ compensation insurance and also that any worker sustaining a work-related injury is eligible for workers’ compensation benefits.

Some business owners may decide to exclude him or herself from coverage under their workers’ compensation insurance. As of January 1, 2017, in order to qualify, the excluded person must be an officer or member of the board of directors and own at least 15% of the outstanding stock of the corporation. In addition, it is also possible for general partners or managing members of a limited liability company to be excluded from coverage. It should be noted, however, that to be excluded, the excluded person must execute a particular type of affidavit.

It is also possible for employers to opt out of purchasing workers’ compensation insurance and instead be self-insured. The employer must be certain criteria in order to qualify for this option. Specifically, the employer must 1) have $5 million dollars of shareholder equity; 2) have an average net profit of at least $500,000 for each of the last five years; and 3) have certified, independently audited financial statements. If a company meets these benchmarks, it may apply to have be self-insured for workers’ compensation insurance instead of purchasing insurance. Each subsidiary of the company must independently apply.

Not every person who works for a company and sustains an injury is eligible for benefits under the workers’ compensation insurance of the employer, regardless of whether that employer is insured through a company or is self-insured. The most notable exception to this are workers who are actually independent contractors. Independent contractors are not covered by workers’ compensation insurance and even if they sustain an injury while performing a work-related task, they are not eligible for benefits. The test for whether a worker is an independent contractor is whether an employer has the right to direct and control how the work is performed, and the means by which it is accomplished. It is important to note that the employer’s classification is not controlling as to whether the employee is an independent contractor; the determination is made after examining the worker’s function and control over his or her work activities.

Other work-related injuries may also be excluded. If the injury was intentionally inflected by the employee, or was sustained while engaging in horseplay,  the injury may not be covered.

If you have questions about whether you are required to cover certain individuals on your workers’ compensation insurance or if certain injuries will be covered under workers’ compensation, contact me today at (714) 516-8188. We can review your business together to make sure it is in compliance and discuss any claims you could be facing.

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