Handymen, Nannies, Small Businesses, and Workers’ Compensation

Millions of Americans run their own small business.  Whether that business is the primary source of income for the family or just a side job to help provide supplemental income, business owners are all well aware that there are many regulations surrounding formation and running a business.  In addition, many people choose to employ other individuals for help around the house, including nannies and handymen.  Whether you have a small business or you employ others to help you around the house, it is important that you understand your rights and responsibilities regarding workers’ compensation.

California labor code provides that employers are obligated to carry workers’ compensation insurance.  This is true even if the business has only one employee.  This is also true of businesses which are located outside the state of California but still do business in this state.  In other words, if your business is located in Oregon but you sometimes do business in California, you are stills subject to the California requirement that you carry workers’ compensation insurance.  For a sole proprietorship, the law does not usually require workers; compensation if the business has no employees.  The important exception to this is for roofing contractors.  All C-39 roofing contractors in California are required to carry workers’ compensation insurance and file a valid certification with the state.

It is also important to understand your obligation regarding workers’ compensation insurance if you use the services of a nanny or a handyman.  Under California labor code 3352(h), “any person employed by the owner or occupant of a residential dwelling whose duties are incidental to the ownership, maintenance, or use of the dwelling, including the care and supervision of children, or whose duties are personal and not in the course of the trade, business, profession, or occupation of the owner or occupant” is classified as an employee.  This means that you may be required to carry workers’ compensation insurance for your nanny or handyman.  California law goes on to state that if the person has worked less than 52 hours in the 90 days before the injury was sustained or earned less than $100 in wages during that time, the person is not an employee for worker’s compensation purposes.

We have extensive experience helping our clients understand the rights and responsibilities concerning workers’ compensation insurance.  Contact us today to talk about your options.

Corporations and Workers’ Compensation

Small businesses form the backbone of the American economy.  Millions of people very year start their own business.  When forming a business, a founder has a wide variety of choices concerning the type of business organization.  A business can be a sole proprietorship, a limited liability corporation, a limited partnership, or even a hybrid of more than one of these types.  There are benefits and drawbacks to each type of business structure.  If you are thinking of choosing a corporation as the structure for your business, you need to understand how workers’ compensation interacts with the rules for corporation formation.

One thing that business owners in California need to understand is that almost all employers are required to carry workers’ compensation insurance pursuant to California labor code 3700.  Failure to carry the required insurance can result in severe civil and even criminal penalties for the business owners.  Corporations are not exempt from this requirement.  Forming a business as a corporation can provide important shelters from liability as well as tax advantages, but these advantages do not include de facto exclusion from the requirement to carry workers’ compensation insurance.

Moreover, some relatively recent changes to the California labor code provides that executive officers and directors of corporations must be included in the workers’ compensation insurance coverage.  The exception to this is if the corporation is fully owned by the directors and officers.  If that is the case, the directors and officers may elect to be excluded from workers’ compensation coverage and benefits.  For this to apply the person must be a sole shareholder who is an officer or director of a private corporation.  In that case, that person is excluded from the legal definition of “employee.” Any director or officer wishing to opt out will have to fill out specific paperwork to accomplish this.  The document is executed under the penalty of perjury, and states that he or she meets the qualifications under the California labor code for being exempt from the insurance requirements.  For officers or members of the board of directors of a cooperative corporation and for owners of a professional corporation, there are additional waiver requirements that must be met.

.We have extensive experience helping our clients understand their rights and responsibilities with regard to California’s workers’ compensation insurance requirements.  Call us today for a consultation.

When Is Self-Insurance Allowed

Workers’ compensation is an important part of our legal system.  It provides support and financial assistance for injured employees.  It also provides immunity from additional tort law suits to the employer, except in limited circumstances.  California has the largest workers’ compensation system in the United States.  Under California law, employers are required to carry workers’ compensation insurance.  There are severe civil and criminal consequences for employers who fail to fulfill this responsibility.  There are a few narrow exceptions to this rule, including self-insurance.

Self-insurance means that the employer has assumed the financial risk associated with providing workers’ compensation benefits to their employees who sustain work-related injuries.  Workers’ compensation benefits can include not only the cost of medical treatment for the worker, but also other monthly benefits.  Clearly, this can represent a significant financial burden, especially for smaller businesses.

California law provides that there are strict requirements before a business can qualify to self-insure instead of purchasing a workers’ compensation insurance policy.  A business wanting to qualify for self-insurance must apply to the California Office of Self-Insurance Plans.  The business will have to provide particular information and evidence to support the application. First, the business must have been a legally authorized business form for at least three years.  Next, the business will have to provide three years of certified, independently audited financial statements with the application.  The business will also have to demonstrate it has an acceptable credit rating for three years preceding applying for self-insurance. If the company has subsidiaries, each subsidiary must file its own application.  The application may be filed separately or together with the parent company’s application.  If a current existing company that already has been approved for self-insurance creates a new subsidiary or affiliate, a new application can be filed.  If the parent company can demonstrate solvency, the subsidiary is automatically self-insured for 180 days.  The parent company must file an application for a permanent certificate during that time.

Once an employer is approved by the state to be self-insured, the employer is still subject to state audits.  The audits check for the accuracy of claims reserving practices as well as the correctness of the reported workers’ compensation liabilities.

If you have questions about workers’ compensation and your rights and responsibilities as a business owner, contact us today.  We can talk to you about your business and the workers’ compensation process.

Structured Settlements and Workers’ Compensation

The legal system is often thought of by lay people as being complicated, and legal cases may take months or even years to resolve a case.  Unfortunately, workers’ compensation is not always an exception to this, as the nature of the cases often include injuries that take time to heal before it can be determined whether a worker is permanently or temporarily disabled, the type of accommodation the worker requires, or whether the worker can even return to work at all.  Both sides are often looking for ways to shorten the process and come to a settlement.  With a settlement, the parties can avoid the time and expense of a court case that drags out and costs both sides dearly.  One way to complete this in a workers’ compensation case is a structured settlement.

A structured settlement is a settlement agreement wherein the employer or its insurance provider agrees to make a series of periodic payments to the injured worker (or the surviving family) over a period of time.  Some structured settlements provide that each payment amount will be exactly the same, but other settlements can provide additional flexibility.  In some cases, the settlement may provide for a lump sum to be paid up front before the regular payments start.  This lump sum may be to assist with housing, transportation, or medical needs.  In addition, the settlement can take future cost of living expenses increase or inflation rates into account, and provide for future increases at specific times.  It should be noted that a separate account is often set up to handle the injured workers’ future medical expenses, and that the periodic payments are meant to represent the lost wages.

One advantage for the employee in accepting a structured settlement is that the periodic payments are not subject to federal income taxes.  An employer will often benefit from a structured settlement in cases where there has been a catastrophic injury that is likely to result in a finding of permanent partial or total disability, especially where the injury is so severe that the worker is unlikely to be able to return to meaningful employment.

We have extensive experience helping our clients understand what types of settleemnts may be best for their business.  Call us today to talk about what we can do to help you.

Do I HAVE to Buy Workers’ Compensation Insurance?

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.

Rescinding a Workers’ Compensation Policy

Employers in California are required by statute to carry workers’ compensation insurance for all of their employees, with only a few, limited exceptions. Failure to carry insurance can result in severe penalties for an employer, and can easily climb into tens of thousands of dollars. Premiums for this insurance are also costly, however, and some employers attempt to keep that cost down by not being completely honest with the insurance company. Employers have been found to lie about the number of employees, the nature of the business, or the location of the work performed, all in an effort to cut the cost of the insurance premium. If the insurance company then discovers the fraud, it can cancel the insurance policy. In Southern Insurance Co. vs. Workers’ Compensation Appeals Board, EJ Distribution Corp. et al., the issue of rescinding an insurance policy for a trucking company was at issue.

In that case, the workers’ compensation insurance company issued a policy to EJ Distribution Corp. The application for insurance incorrectly indicated that the employees would not travel outside the state of California or  farther than 200 miles from the business. Later that same year, a worker injured his back while in Tennessee and performing work for the employer. The next month, the worker filed for workers’ compensation and the employer filed a claim with the insurance company. In June, the insurance company notified the employer that they would be rescinding the insurance policy based on the material misrepresentation made by the employer in that it failed to state that its employees were actually long-haul truckers. The insurer applied this rescission retroactively, returned the policy premiums paid to that date, and cancelled the policy going forward. The employer and insurer submitted to mandatory arbitration. The arbitrator determined the insurer could not retroactively rescind the policy, based on some ambiguities in the state statutes. The WCAB disagreed. It determined that California’s insurance code does provide for rescission of policies and the law makes no exception for workers’ compensation policies. The court determined that there was evidence that the employer made knowing misrepresentations to the insurer, but there was not a decision about whether the misrepresentations were material, which is required for rescission to be the appropriate remedy. The WCAB sent the matter back to arbitration to make the determination

The workers’ compensation system has many important requirements for employers. Call us today at (714) 516-8188 and let us talk with you about your business and what you need to do to make sure you are in compliance.

Is My Worker an Independent Contractor?

Employers many times will take different paths to make sure that the services and products demanded by customers and clients are supplied an executed in a timely manner.  This includes hiring employees directly as well as using the services of other businesses, such as internet service providers, couriers, or food services.  In between these two falls the independent contractor.  While an employer is required to provide workers’ compensation insurance for all employees with few exceptions, an employer is not required to provide workers’ compensation insurance for independent contractors.  Penalties for failing to adhere to this provision are severe, so it is crucial that an employer have a firm understanding of the differences between an employee and an independent contractor.

 

California Labor Code section 3353 defines “independent contractor” as any person “who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.”  This statute essentially means that to be an independent contractor, the person has to have control over the way in which a job is accomplished.  Accordingly, if an employer is telling an independent contractor not only what the job is to be done but also how and when to do the job, it is very possible that the person is actually an employee.  The California Supreme Court also laid out a multi-factor test in S.G. Borgello & Sons, Inc. v. Dept. of Industrial Relations, which discusses a long list of other potential contributing inquiries.  These include such issues as whether the person performing the services is also engaged in another business that is separate from that of the employer, whether the service performed is part of the regular business of the employer, who supplies the work materials for the job, and whether the service rendered requires special skills.

 

There is an automatic presumption under Labor Code that a person is an employee.  If the employer disputes this, then it is up to the employer to prove that the person is an independent contractor.  The most straight-forward way to demonstrate that a person is an independent contractor is to have a written agreement between the business and the contractor that specifies this.  However, the employer must be aware that simply calling a person an independent contractor does not make it true, as a court will look beyond the agreement to what the parties actually did in order to make the final determination.

 

If you have questions about your business and making sure it is in compliance with rules regarding independent contractors, call us today at (714) 516-8188.  I have experience in helping my clients understand the rules and regulations for any business.

Controlling Costs in Workers’ Compensation

Every business owner knows that keeping costs down in any area possible is essential to the growth of his or her business.  Wasting money and resources is never a good business practice, and it is crucial that any business owner stay on the alert for ways to reduce waste and costs.  The area of workers’ compensation is no exception to this rule.  Clearly the employer should not be looking for ways to get out of paying appropriate workers’ compensation claims, but there are legitimate and important other methods to help keep the cost of workers’ compensation down.

First, a well-thought out safety plan and program will help keep the employees from sustaining work-related injuries at all.  Employers should make sure that the employees have a good understanding of all safety procedures and protocols in the work place.  Creating a safety committee and changing the safety procedures on a regular basis to reflect changes in the industry or in the work place will also help reduce these costs.

Second, in the event an employee does sustain work-related injuries, the employer should take any available action to help that employee return to work as soon as possible.  Even though it is possible to have others fill in for the injured employee or even hire a temporary worker to fill the injured employee’s position while he or she recovers, this ultimately will probably cost the employer more money.  The employee has the expertise and contacts necessary to complete his or her job in a more efficient and straight-forward manner than a temporary worker who will have to be trained.  An employer should stay in close contact with the medical professionals and its workers’ compensation insurance company during the flow of the workers’ compensation case to make sure that the employer is taking any available steps to help get the employee back to work.

Finally, an employer should be open and honest with the workers’ compensation insurance company.  Being less than honest about the number of employees or nature of the work performed may cut costs on the front end, but when the insurance company discovers the deception, it can cost the employer much more than the original cost of insurance would have been.  Moreover, if the employer has an open discussion with the insurer about safety measures that are being taken, there is sometimes a possibility that such programs could help lower workers’ compensation insurance costs.

Ensuring compliance with workers’ compensation standards is essential for any business, but it does not have to bankrupt the company. Contact me today at (714) 516-8188 to talk about your business and what needs to be done.

What is the Central Index Bureau and Can It Help My Business?

There are many ways that an employer can properly reduce the cost associated with workers’ compensation, such as properly reporting injuries and the number of employees to the employer’s workers’ compensation insurance company.  Another very important step to reducing costs is taking steps to recognize and curtail workers’ compensation fraud.  The Central Index Bureau is a tool used by workers’ compensation insurance companies to assist in spotting fraudulent workers’ compensation claims.

The Central Index Bureau is a division of the Insurance Services Office, which was formed as an organization for the purposes of advising and rating insurance industries in order to provide statistical services and help combat fraud.  The reports from the Central Index Bureau can also be called “an ISO” or a “claim index.”  The terminology will vary between insurance companies, and almost all insurance companies are members of the ISO Central Index Bureau.  These reports contain a record of every insurance claim filed by any individual, including workers’ compensation claims.  When an employee makes a workers’ compensation claim, a CIB report will be generated by the workers’ compensation insurance company.  This report contains the employee’s name, social security number, aliases, addresses, occupation, and other vital statistical information.  The report will also identify all past claims made by the employee, including the type of injury, the source of the injury (such as automobile accident, medical malpractice, etc.).  The report will also identify the employee’s medical providers for the past injuries and the names of any attorneys who may have represented the employee.

An insurance adjuster can use all of this information to help spot and stop workers’ compensation fraud.  The adjuster will examine this report for repeat injuries.  For example, if the employee has made many workers’ compensation claims, all stating that the employee has a soft-tissue injury, this could be a red flag for fraud, or at the very least indicates a potential pre-existing injury.  The adjuster will also be on the look-out for multiple doctor changes.  Employees who commit workers’ compensation fraud will often switch doctors with a high frequency.  This is so the new doctor will not be familiar with the employee’s history of injuries.

If you have questions about how to best protect your business from fraudulent claims, contact us today at (714) 516-8188.  We will discuss your business and how to stop fraud in the work place.

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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