Employers know that they need to take precautions to make sure their business is adequately protected. Employers need to carry a variety of types of insurance, ranging from fire insurance to insurance on any vehicles. Workers’ compensation insurance is another important component to protect your business. Workers’ compensation provides insurance coverage in the event that your employee sustains a work-related injury. Despite its protections, some employers find the cost of workers’ compensation insurance too heavy a price to pay for that protection. This leads many employers to wonder whether they can opt-out of carrying workers’ compensation insurance.
California labor code section 3700 provides that if a business employs one or more employees, that business is required to carry workers’ compensation insurance. It is important to note that this requirement includes some workers that you would not ordinarily believe would fall under this requirement, such as nannies or handymen. It also should be noted that due to recent changes in the law, executive officers and directors of corporations must also be included in workers’ compensation coverage unless the corporation is completely owned by the directors and officers. In that circumstance, they can opt to be excluded from coverage. Except for those circumstances, all employers are required to carry workers’ compensation insurance and can face hefty penalties for failure to comply.
In some cases, an employer may decide to self-insure. Self-insurance requires that you receive state approval. The business must have a net worth of at least five million dollars with a net annual income of at least five hundred thousand dollars. The employer must also post a security deposit. Although this generally means that only larger businesses are able to meet the requirements, some small employers in the same homogeneous industry pool their workers’ compensation liabilities. If the employer is self-insured, workers’ compensation claims may be administered directly by the employer or the employer may contract with a third party administrator to handle the administration of the case.
If you have questions about whether your business is required to carry workers’ compensation insurance, contact us today. We can talk to you about your rights and responsibilities.