Do You Need Workers' Compensation Insurance for Your Small Business in California?

If you have a small business in California and you have employees, you need to have workers' compensation insurance. According to the California Division of Workers' Compensation, you are required to have workers' compensation insurance even if you have just one employee.

If you are a roofer, you are required to have workers' compensation insurance in California even if you do not have any employees. If your business is located outside California but you have employees who regularly work in California, or you enter into an employment contract in California, you are also required to have workers' compensation insurance.

According to the California Workers' Compensation Institute, some of the only exemptions from the requirement to have workers' compensation insurance are people who are in business for themselves and some unpaid volunteers.

Workers' compensation insurance provides no-fault coverage for employees against workplace injuries. In return, you as the employer are protected against law suits filed by employees who are injured or become sick as a result of work.

Employees are covered by workers' compensation as soon as they start work, with no waiting period, no requirement to work a certain number of days or weeks, and no need to earn a minimum amount.

Workers' compensation insurance coverage provides medical care in case of injury or illness, temporary disability benefits, permanent disability benefits, supplemental job displacement benefits or vocational rehabilitation, and death benefits.

You can purchase a worker's compensation insurance policy through any licensed insurance company or broker in California. Or you can purchase a policy through the California State Compensation Insurance Fund, which is the largest provider of workers' compensation insurance in California.

If you meet certain financial requirements you can apply to become self-insured if approved by the California Department of Industrial Relations. You could also pool resources with other small businesses to meet the financial requirements for group self-insurance. The financial requirements for self insurance are $5.0 million in shareholders' equity, average net profits of $500,000 per year for the last five years, and certified, independently audited financial statements.

As explained by the Workers' Compensation Insurance Rating Bureau of California, the rate you pay for workers' compensation insurance depends on the Standard Classification System. This system groups companies based on types of operations. A pure premium rate is calculated for each classification. This rate is expressed in terms of a certain dollar amount per each $100 of payroll.

Each insurance company can establish its own rates for workers' compensation insurance. The insurance company may take the pure premium rate established by the Workers' Compensation Rating Bureau and add on factors to cover its administrative costs. Or the insurance company may develop its own rate structure.

California has an experience rating system that is intended to provide employers with a financial incentive to reduce work-related accidents. To be eligible for this experience rating, your total payroll for a three-year experience period, multiplied by the pure premium rate for each classification, must exceed a certain threshold. You can find more information under Determining Eligibility on the Workers' Compensation Insurance Rating Bureau website.

Sources:

California State Compensation Insurance Fund

Determining Eligibility, Workers' Compensation Insurance Rating Bureau of California

Division of Workers' Compensation - Employer Information, California Department of Industrial Relations

Employers, California Workers' Compensation Institute

Fact Sheet, Division of Workers' Compensation

Guide to Workers' Compensation Insurance, Workers' Compensation Insurance Rating Bureau of California