One of the things providers often ask us about is workers’ compensation insurance. What are the requirements for workers’ compensation? What happens if you don’t carry it?
Workers’ compensation requirements vary from state to state, but most states do require that you carry it. In California and Arizona, for example, an employer must carry workers’ compensation insurance if they have even one employee, regardless of how many hours that employee works. Because workers’ compensation can be expensive, many providers try to find a way around carrying it, or hire only volunteer workers, thinking that this will make them exempt from the requirement.
This can be an extremely costly mistake. Not carrying your state’s required insurance can lead to large fines and damaging lawsuits. Even if you only hire volunteers, the state may still consider them employees, depending on the nature of the work that they’re performing. Let’s take a look at exactly what workers’ compensation covers and what can happen if you are discovered to be illegally uninsured.
Workers’ compensation is a type of insurance that covers medical care, temporary and permanent disability benefits, vocational rehabilitation, and death benefits in the event that your employee is injured while on the job. Workers’ compensation is a “no fault” insurance, meaning it will cover your employees’ expenses even if you were not responsible for causing the injury. In most states it is packaged with employers’ liability insurance, which protects you if your employee sues you, but this is not the case in every state, and the two are technically different policies.
In California, workers’ compensation is required for every employee you hire. Labor Code 3350-3371 defines an employee as any person “in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed.” This means that any person who works for you, even if it is a family member or a minor, is considered an employee. Volunteers, if they are performing work that an employee would normally perform, or if the work that they’re performing is beneficial to your business, may be considered employees. If you have a volunteer working for you, you should call your state’s workers’ compensation division to find out what the requirements are. In some states, such as California, your son, daughter, spouse, and parents are excluded from the workers’ compensation requirement, so you can have them assist you in the daycare without obtaining coverage for them. However, you should strongly consider obtaining coverage for them in order to protect both you and them in the event of an accident.
Workers’ compensation premiums are based on many factors, such as the size of payroll, the employee’s classification, and the employer’s claim history, so rates can vary greatly from employer to employer. For some providers coverage can be costly, but the costs of not having coverage can be far greater. In California, for example, failure to carry workers’ compensation insurance for your employees is a criminal offense punishable by fines of up to $10,000, a year in jail, or both. If an employee files a claim against you, in addition to paying the state’s fines, you will also be responsible for reimbursing the employee’s medical expenses, which could be tens of thousands of dollars. If you are unable to pay these expenses, you could end up with a lien against your property. And it doesn’t end there. On top of all of that, the employee can also file a civil suit against you, meaning you could potentially lose all of your assets.
As you can see, the potential losses from not carrying workers’ compensation insurance far exceed the amount that you would pay in monthly premiums for the proper coverage. This coverage can certainly be costly, but by carrying workers’ compensation for all of your employees you will be protecting yourself from potentially devastating costs down the line. If you have people working for you, and you aren’t sure whether they are considered employees, call your state’s worker’s compensation division to get clarification. If you run a daycare, DCI can help you find the right coverage for your business.