What employers and HR managers need to know about the workers’ compensation system.

Under the workers’ compensation system, employers are required to purchase insurance that provides benefits to employees who suffer work-related injuries and illnesses. The system strikes a compromise between employers and employees: Employees get benefits regardless of who was at fault. In return, employers get protection from lawsuits by injured employees seeking money damages for pain and suffering or mental anguish.

Workers’ compensation is governed by state law, and each state’s system differs slightly in the details. (There is a separate federal workers’ comp system for those working for the federal government, such as U.S. Post Office employees.) However, the structure and operation of the overall workers’ compensation system is very similar from state to state. The main differences are the rates paid to injured employees and the procedural rules employers, employees, and insurance companies must abide by.
To find out the details of your state’s law, contact your state department of industrial relations or workers’ compensation. You can also find information on state workers’ compensation laws at the U.S. Department of Labor’s website, www.dol.gov. From the home page, click “Audience,” then “Employers,” then “State Workers’ Compensation Laws” (listed under the “Workers Compensation” heading).

Employers have a number of obligations under the workers’ compensation system. If these requirements are not met, employers can be fined and injured employees may be able to sue an employer in court.

Carry Workers’ Compensation Insurance

If a business lacks the workers’ compensation coverage required by law, employees may file a lawsuit against the business in civil court or, in some states, file a workers’ compensation claim against a special uninsured employers fund (for instance, California has the Uninsured Employers Benefits Trust Fund).

Post Notices and Advise Employees of Their Legal Rights

Employers must post required notices in a convenient location frequented by employees during working hours. The notices or posters contain important information about employees’ rights and:

• provide the name of the company’s workers’ compensation carrier, or the fact that the employer is self-insured, as well as who is responsible for claims adjustment
• state that injured workers have the right to receive medical treatment and to select or change treating doctors, and
• give details about available workers’ compensation benefits.

Employers must also notify new hires of the above information.

Provide Claim Forms to Injured Employers

Employers must typically provide injured employees with a workers’ compensation claim form within 24 hours of receiving notice of the injury. Employers must also supply the employee with written information (usually a pamphlet) about the employee’s rights under the workers’ compensation system. The written material should provide details about available benefits and how to file a claim.

Q. Who is required to purchase workers’ compensation insurance?

A: All California employers must provide workers’ compensation benefits to their employees under California Labor Code Section 3700. If a business employs one or more employees, then it must satisfy the requirement of the law.

Sometimes a business owner (sole proprietor) may desire to purchase workers’ compensation insurance to cover himself/herself only. The inclusion of a sole proprietor must be clearly stated in the workers’ compensation policy or must be added as a coverage endorsement to the policy. Since workers’ compensation insurance is a type of liability insurance where the employer assumes complete liability for all worker injuries, a workers’ compensation policy for a sole proprietor may not be the best choice.

Purchasing health, life, and/or disability income insurance can be a viable option to workers’ compensation for a sole proprietor. Contact a licensed commercial broker-agent or a casualty broker-agent for further information and consultation.

Executive officers and directors of corporations must be included in workers’ compensation coverage, unless the corporation is fully owned by the directors and officers. If the directors and officers fully own the corporation, then they may elect to be excluded from workers’ compensation benefits. Fully owned corporations may want to discuss the option to include or exclude their officers and directors with a licensed commercial broker-agent.

California Labor Code Section 3351 defines who is an employee, and therefore who can be covered under a workers’ compensation policy. Whether a business is a sole proprietorship, a partnership, or a corporation, it is beneficial to develop a working relationship with a reliable, competent broker-agent who can explain coverage eligibility issues and present options based on the organization model of a business.

Q: How can I find out who provides workers’ compensation coverage for another business in California?

A: The DWC does not provide workers’ compensation insurance for employers and does not maintain information about employers and their respective insurers. To find out which insurer provides workers’ compensation insurance for a specific employer, contact the Workers’ Compensation Insurance Rating Bureau (WCIRB). The roster of self-insured employers can be found on the Self Insurance Plans Web page.

Basic facts for employers on workers’ compensation can be found in the DWC’s fact sheet for employers.

Q: Where do I get workers’ compensation insurance?

A: Employers must purchase workers’ compensation insurance from either a licensed insurance company or through the State Compensation Insurance Fund (State Fund). Employers may also have the option to self-insure for workers’ compensation.

A commercial broker-agent can assist a business with purchasing workers’ compensation insurance from a licensed insurance company and can assist with information on State Fund and self-insurance. Also, information on insurance companies licensed to sell workers’ compensation insurance and an online rate comparison of the top 50 workers’ compensation insurers can be accessed on the California Department of Insurance (CDI) Web site at www.insurance.ca.gov.

State Fund is a state-operated entity that exists in order to transact workers’ compensation on a non-profit basis. State Fund competes with private workers’ compensation insurance companies for business and also operates as the insurer of last resort if private companies are not willing to offer workers’ compensation insurance.

Q: What about self-insurance?

A: Self-insurance requires state approval, a net worth of at least $5 million, net income of $500,000 per year and posting of a security deposit. While historically only very large companies could self-insure because of legal requirements, in recent years group self-insurance, in which several small employers in the same homogenous industry pool their workers’ compensation liabilities, has increased in popularity as an alternative to traditional coverage. Contact your broker or the state’s Office of Self Insurance Plans for information on how to self-insure.

A self-insured employer has the option of administering its own workers’ compensation claims or contracting with a third party administrator (TPA) to provide these services.

Q: How much does workers’ compensation insurance cost?

A: Workers’ compensation insurance premium rates are not regulated by the state. While the Workers’ Compensation Insurance Rating Bureau – the licensed statistical agent for the state insurance commissioner – issues recommended rates and carriers must file their rates with the California Department of Insurance, rates can vary from carrier to carrier. Like any good consumer, you should shop around for a carrier that best meets your needs. Cost is one consideration, but there are other factors to look at: services provided, ease of access to the claims adjusters, their familiarity with your industry, the doctors in their network, etc. If you have a broker or agent, he or she should be able to give you expert guidance.

Q: What determines how much I’ll pay for my premiums?

A: A number of factors go into determining the annual premium your insurance carrier will charge. These include your industry classification, your company’s past history of work-related injuries (known as your experience modification), your payroll, any special underwriting adjustments such as use of a certified health care organization, and any special group or dividend programs you may be eligible for.