Workers’ Compensation Insurance: Costs and Penalties - Strong Tie Insurance Services

Workers’ Compensation Insurance: Costs and Penalties

Strong Tie Insurance April 9, 2019 Workers Compensation

If you have a small business, partnership, or sole proprietorship, or if you’re self-employed in California, you may have questions about workers’ compensation insurance. Naturally, many business owners are concerned about the cost of this insurance and the possible penalties for not being insured.

Although you will have to pay premiums to retain your CA workers’ comp insurance, those costs pale in comparison to what you could encounter if you are caught uninsured and one of your employees becomes injured at work.

California requires businesses that retain employees to purchase workers’ comp insurance. If you operate without it, you can face steep financial penalties. It is even considered a criminal offense that can result in jail time.

Furthermore, without insurance, you could be held liable for an injured employee’s medical bills, as well as their lost wages and other costs. Like any insurance policy, California workers’ compensation insurance protects you from liability and general risk to your business.

Nonetheless, there are specific costs and penalties you should pay attention to so you can fit your workers’ comp insurance bill into your budget.

How Much Does an Employer Have to Pay for Workers’ Comp?

Workers’ compensation insurance policies differ in terms of coverage, and not all states require the same types of coverage. Typically, if you have workers’ comp insurance, it will pay for the following:

  • Medical costs to treat immediate injuries and illnesses
  • ER visits
  • Lost wages
  • Ongoing care
  • Funeral costs
  • Death benefits
  • Legal costs if an employee sues you (in some cases)

California employers do have the option to pay out of pocket for an employee’s workers’ compensation claims. Specifically, they can do so in the instance where only first-aid is necessary to treat an injury. This minimizes the impact of a claim on your insurance premiums and other modifications.

However, keep in mind that some injuries can become worse over time. Even something small like a cut could become infected, leading to much costlier medical bills. It’s also possible that an employee will sue you later for a workplace injury, even if you paid their medical costs.

How Much Does Workers’ Comp Insurance Cost for a Small Business?

The cost of workers’ compensation is determined by the Workers’ Compensation Board in each state. In California, the Division of Workers’ Compensation monitors the administration of workers’ comp claims and assists in resolving disputes.

However, the process for calculating the cost of workers’ compensation insurance is mostly similar in each state.

The state classifies each occupation based on its level of risk. Risk is determined by the frequency of on-the-job injuries in the occupation as well as the severity of injuries sustained in the occupation. Severity is measured based on medical payments and payments made directly to employees.

For example, a roofer will have a higher risk classification than an office worker. They work at high heights, outside, and with power tools, whereas the office worker is relatively safe indoors during most of their workday.

In fact, roofers have the highest occupational risk classification in California. This means the costs of workers’ compensation insurance would be higher for a roofing company than it would be for other types of companies.

Each occupational risk classification is translated into a dollar amount which is multiplied by 1% per $100 of the total payroll for an employee.

Let’s say a risk classification translates to a dollar amount of $125. Multiplied by 1%, an employee with his classification would cost $1.25 per $100 paid to insure.

if an employee is paid $500 per week in workers’ compensation and the risk classification for that worker translates to $1.25 per $100, the insurance premium the employer pays is roughly $6.25 per week or $25 per month for that employee.

These rates can fluctuate based on your company’s safety history and whether you offer health insurance to your employees. If you maintain a safe and healthy work environment, you could pay lower rates.

How Much Does Workers’ Compensation Insurance Cost if You’re Self-Employed?

If you are a freelancer, a sole proprietor, an independent contractor, or if you are legally self-employed, you are not typically required to buy workers’ compensation insurance. However, you may do so if you wish — it all depends on how hazardous your occupation is and your own tolerance of risk.

The cost of coverage will depend on your occupation, but self-employed individuals typically pay far less than other types of businesses. That’s because the only employee they need to cover (typically) is themselves and perhaps sub-contractors.

If you hire subcontractors as part of your business, it is usually a good idea to obtain workers’ compensation insurance just in case. General contractors can sometimes be liable for injuries sustained by their subcontractors. If you work in an industry like construction, this insurance could be a life-saver.

It’s important to remember that you will not typically be covered by an company’s workers’ comp policy as a self-employed worker, even if they hire you. You are treated as a business entity and any payments made to you are considered a business transaction, not a payroll payment like that of a W-2 employee.

Even if you work alone and have decent medical insurance, workers’ compensation insurance can help you recover lost wages when you need to recover. If you work a relatively safe occupation from home, for example, you should be able to get affordable workers’ comp insurance.

What are the Penalties for Non-Compliance in California?

According to the California Labor Code Section 3700, all California employers must provide workers’ comp benefits to their employees. Failing to do so can result in hefty fines and even jail time.

If you are found to be operating without workers’ compensation insurance in California, you could be charged with a misdemeanor and face the following penalties:

  • Imprisonment of up to one year
  • Fines of not less than $10,000
  • Additional fines up to $100,000

The additional fines are based on how much you would have paid in workers’ comp premiums during your uninsured time — or they are based on each employee you had during your uninsured time. Specifically, the penalty would be either twice the amount you’d pay in premiums or the sum of $1,500 per employee during your uninsured time.

Typically, a court will choose the greater of the two when delivering the penalty.

How Can You Purchase Workers’ Compensation Insurance?

Purchasing workers’ compensation insurance in California is easy and affordable. It’s available from private insurers like Strong Tie Insurance.

To get a quote, ask a question, or learn more about workers’ compensation insurance, contact us today