There are a variety of expenses associated with running your own business. From inventory to lease payments to taxes, there are many expenditures included in your total overhead. In California, workers’ compensation needs to figure into this computation. Especially in the case of small businesses, many business owners wonder if it is necessary to purchase workers’ compensation insurance, as the cost can be extensive. It is very important for business owners to understand the different permissible options under California law, as well as the consequences of not acting pursuant to the relevant regulations.
The option that is most common is purchasing a workers’ compensation insurance policy. Pursuant to California Labor Code § 3700, a business must provide workers’ compensation benefits to its employees if it employs one or more employees. Recent changes to the law provide that executive officers and directors of corporations are no longer exempt from the requirement that all employees must be covered, with some limited exceptions. California Labor Code § 3351 defines “employee,” and it should be noted that “every person in the service of an employer under any appointment or contract of hire or apprenticeship, oral or written, whether lawfully or unlawfully employed” is included under the definition. Moreover, other people such as minors, handymen, aliens, nannies, and several others are also included.
Self-Insurance can also be an option for some businesses. Businesses or employers who want to be self-insured must fulfill very particular financial requirements. In addition, the business must apply to the Office of Self-Insurance Plans for Approval. The business or employer must provide 1) three calendar years in business in a legally authorized business form; 2) three years of a certified, independently audited financial statements; and 3) acceptable credit rating for three full calendar years leading up to the application. Employers should note that subsidiaries must apply separately.
If you choose not to provide workers’ compensation insurance, the consequences could be severe. Not only could you and your business face stiff fines, there is a possibility you could even face criminal prosecution. The first offense could result in a fine of $10,000 and a year and jail, and subsequent offenses carry even stiffer penalties.
If you have questions about whether you are required to carry workers’ compensation insurance for your business, contact us today. We can discuss your business and what we can do to protect its future.