Do I Have Alternatives to Carrying Workers’ Compensation Insurance?

Workers’ Compensation is a vast and often complex system. The goal of the entire set of laws is to protect both the employees and the employer. When an employee sustains a work-related injury, the workers’ compensation system provides a method by which the employee may receive payments for medical treatment and for disability payments and also by which the employer may be insulated from a costly law suit. To make sure the employees receive the compensation that they need following such an injury, California law requires that employers carry workers’ compensation insurance. Some employers find this requirement burdensome, and frequently ask whether there are any alternatives to carrying workers’ compensation insurance. It is first essential to understand that the California requirement to carry insurance is strict, and failure to abide by its provisions can result in both civil and criminal penalties. That being said, there are some limited situations in which an employer may have some alternatives to carrying workers’ compensation insurance.
One alternative to using a traditional insurance company is for an employer to purchase insurance through the State Compensation Fund. This may be an appropriate and essential alternative for those employers engaged in a high-risk business. Such high-risk businesses may be turned away from traditional insurance agencies, or the premiums may simply be too high. For an employer with this problem, seeking options from the State Compensation Fund may be the answer. State Fund is required to offer coverage to any business, although the cost may be higher than an Employer would find with another Insurance Company.
Some employers may also choose the option of being self-insured. To become self-insured, an employer must first apply to the Office of Self-Insurance Plans for approval. The OSIP will evaluate the application and the business for financial strength and stability, the proposed benefit delivery system, and whether the business is suitable to participate in self-insurance. The financial requirements are that there must be $5 million in shareholder equity, an average net profit of $500,000 per year for each of the last five years, and certified, independently audited financial statements must be provided to verify these claims. If the company has affiliates or subsidiaries, each of those must file its own application to become self-insured.
There are some limited circumstances in which an employer may not have to cover certain workers under workers’ compensation insurance at all. These exceptions would apply to independent contractors or certain types of board members in closely held corporations. Before assuming that these exceptions apply to your business, however, you need to consult an attorney.
California requirements to carry workers’ compensation insurance are strict and the penalties are harsh. Before making these decisions for your business, you need to consult an experienced attorney. Contact me today at (714) 516-8188 to more thoroughly review the requirements for your business.

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