Workers’ compensation FAQ

We get many questions about workers' compensation that we want to address them all in a way that’s simple and easy to understand. The FAQ below will provide some much needed inside on the U.S.'s oldest social insurance program.

In this article:

1. I only have one part-time employee. Do I still need Workers' Comp?
2. Does my General Liability policy or BOP provide Workers' Comp coverage?
3. Are there penalties if I don't purchase Workers' Comp?
4. My employee was negligent at work and that's why he got hurt. Is he still covered under my Workers' Comp policy?
5. What if my employees' payroll is lower than originally estimated. Do I get a refund?
6. Do I have to report payroll?
7. Are there different Workers' Comp rates for different types of businesses?
8. Am I, the business owner, covered under my Workers' Comp?
9. Do I need to purchase Workers' Comp if my employees work out-of-state?
10. What's the difference between Workers' Comp and Health Insurance?
11. I employ persons classified as independent contractors; do I still need to buy Workers' Comp?

1. I only have one part-time employee. Do I still need Workers' Comp?

YES – California law requires employers to carry Workers' Comp even if you have only one person on payroll. The same answer applies even if they are a family member, friend, or temporary employee.

2. Does my General Liability policy or BOP provide Workers' Comp coverage?"

NO – These always have to be written in separate policies. Even if your GL or BOP carrier writes Workers’ Compensation insurance, it will have a different policy number and likely be insured with a different writing company.

3. Are there penalties if I don't purchase Workers' Comp?

YES – Operating without this coverage is a misdemeanor in California. You can face fines up to $10,000-$100,000, imprisonment in a county jail for up to one year, and/or a stop order against your business (aka your business will be shut down until insurance is secured). Not to mention your business will be fully liable for all medical costs and bills should an employee fall ill or get injured (and let me tell you, this gets expensive – particularly if an employee claims for a lifelong affliction developed on the job, i.e. backstrain from lifting heavy boxes or emphysema made worse by airborne chemicals, etc.)

4. My employee was negligent at work and that's why he got hurt. Is he still covered under my Workers' Comp policy?

YES – Employees are entitled to receive medical treatment for on-the-job injuries or illnesses regardless of who’s at fault. In return they are prevented from suing employers over those injuries.

5. What if my employees' payroll is lower than originally estimated? Do I get a refund?

YES – If the annual payroll was estimated to be, let’s say, $80,000/year but at the end of the policy term your actual reported payroll turns out to be $60,000, you will be refunded the difference in premium. At the same time, if your payroll is higher than reported, like $100,000, then you will be required to pay the additional premium due upon the final audit.

6. Do I have to report payroll?

YES – The initial premium is only based on an estimated payroll figure. At the end of every policy term, you are required to report your actual payroll so that the insurance carrier can determine your final earned premium (the exact amount owed to the company). Should you choose not to report your payroll, the company may penalize you up to 3x the amount of estimated annual premium per California Insurance Code, refer your account to a collection agency or both – which besides being costly would also negatively impact your credit score.

7. Are there different Workers' Comp rates for different types of businesses?

YES – Businesses are first classified by the type of work their employees are involved in and then the specific industry classification code. For example, if you own a restaurant with five employees who cook, serve, and/or deliver and have one employee who handles your bookkeeping, the rates would be higher for the former since it represents bigger exposures. Therefore restaurant class employees and clerical office employees must be rated separately based on the payroll for each class.

8. Am I, the business owner, covered under my Workers' Comp?

YES & NO – All employees of the company (including corporate officers and directors) are automatically included in the policy unless you’re the sole owner of the firm or elect to exclude yourself. However, most business owners opt for the latter option since it’s pretty costly otherwise (you’d be better off covering yourself in a separate health policy).

9. Do I need to purchase Workers' Comp if my employees work out-of-state?

YES – If an employee is regularly employed or a contract of employment is entered in California, then you are required to purchase coverage for them.

10. What's the difference between Workers' Comp and Health Insurance?

Workers’ Comp is designed for workplace injuries and illnesses, whereas Health Insurance provides coverage for preventative care and non-work-related medical expenses. Many employers offer Health Insurance to their employees as part of a benefits package, but individuals can also purchase plans on their own.

11. I employ persons classified as independent contractors; do I still need to buy Workers' Comp?

NO – Employers do not have to cover independent contractors under their Workers’ Comp insurance. How to determine whether or not an employee is an independent contractor, however, is determined by a number of factors (you can learn more here: www.dir.ca.gov/dlse/faq_independentcontractor.htm) – keep in mind that a simple written employment contract or mutual agreement on the status will not suffice. We advise you to thoroughly research and assess each working relationship before it's established.