Risk

Workers' Compensation in California: What You Need to Know to be Prepared

Spark Team Spark Team

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No matter what business you're in, accidents are bound to happen. For employers in California, finding the right workers' comp insurance at the right price needs to be a top priority.

For decades, California has been a magnet for opportunity. According to recent data, more than 4.7 million businesses currently call the Golden State home – employing more than 21 million people.

With such a large and diverse workforce and numerous jobs and services being offered, accidents will inevitably take place. That's why it's important for California business owners to be proactive as they look to protect their employees and their companies – before those incidents occur.

In this article, we'll guide you through the most important aspects of workers' compensation in California, including who needs insurance, what benefits are generally covered, and provide a list of steps on how you can best prepare your business to stay compliant.

Who needs workers' compensation in California?

Every state has different rules and regulations for workers' comp insurance; however, California is among the strictest in the country when it comes to protecting workers. According to California Labor Code Section 3700, all businesses that employ at least one employee must provide workers' comp insurance. This includes full- and part-time workers, as well as anyone employed within the state, even if your business' headquarters is located somewhere else.

Within the workplace, employers are also required to post a Notice to Employees Poster in a conspicuous area where all employees can see it. Failure to post the notice is considered a misdemeanor and could come with a civil penalty of up to $7,000 per offense. Furthermore, new hires must be given a pamphlet or brochure explaining their workers' comp rights and responsibilities.

There are a few circumstances where workers' comp insurance is not mandatory in California. For instance, while some self-employed contractors are required to carry workers' comp insurance, sole proprietors and other independent contractors may be allowed to waive the workers' comp requirement. To see if a worker is an employee or an independent contractor, use the state's ABC Test.

What does workers' comp insurance cover?

"Finding great workers' comp insurance is essential to running a successful business in California," says Ben Crownover, licensed agent at Automatic Data Processing Insurance Agency, Inc. (ADPIA®) and vice president of sales at ADP®. "It can really help your employees and their families should they get injured or sick on the job."

In California, workers' comp insurance plans generally include five basic types of benefits:

  1. Medical care. This part of coverage includes first aid, lab tests, x-rays, doctor visits, hospital stays, physical therapy, and even travel costs.
  2. Temporary disability benefits. If an employee needs to take some time off to recover before returning to work, these benefits are available to help them stay financially afloat – as eligible employees can receive up to two-thirds of their regular pay (subject to state minimum and maximum regulations).
  3. Permanent disability benefits. If an employee is injured to the point of permanent loss of function (physical or mental), they may be eligible for long-term wage replacement (subject to state minimum and maximum regulations).
  4. Supplemental job displacement benefits. If an employee cannot be offered regular or modified work due to a permanent disability, this coverage can help them fund any costs required to find a new job (i.e., licensing or schooling).
  5. Death benefits. In the worst-case scenario, death benefit payments can be made to the spouse, children, or other dependents of an employee who dies while performing a work-related task.

For more information, please refer to the California Department of Insurance (CDI) website.

4 tips to keep your employees and your business covered in California

"Compliance in California can be tricky, but you can never go wrong with protecting your employees," adds Crownover. "Keeping them safe on the job and taking care of them should something happen is a win-win for everyone involved."

Here are some helpful tips to consider when developing your company's workers' comp insurance strategy:

  1. Consider how the law affects your company. Operating a business in California means you must regularly familiarize yourself with the state's insurance laws and regulations. On the surface, recognize that you'll most likely need workers' comp insurance at all times. Even if you're considered exempt, it's still a worthy investment to keep yourself and/or your employees protected.
  2. Know what your business needs. No one knows your business like you do. Since every organization is unique, managing risk looks different to everyone as well. Depending on what industry you're involved in (i.e., construction vs. retail), your workers' comp needs should match the real workplace risks that your employees could encounter. A good rule of thumb is to identify your workplace hazards first and make sure that any workers' comp insurance plans cover them appropriately.
  3. Reinforce safety in the workplace. Accidents will happen, but no one wants to see them occur on a daily basis. To help keep everyone safe (employees and customers alike), take the time to implement workplace safety initiatives. Provide training to all of your employees – not just the newbies. Above all, keep your work environment as clean as possible at all times.
  4. Shop around to get the best insurance for you. California employers have three routes to finding quality workers' comp insurance. First, you could purchase coverage from a licensed, independent insurance company that's approved to do business in California. Others could elect to partner with the State Compensation Insurance Fund (State Fund). The State Fund is a not-for-profit state agency that specializes in workers' comp coverage offerings. Lastly, you could choose to self-insure your business, as long as you meet state-approved criteria as outlined by the California Department of Industrial Relations (DIR) – which regulates workers' comp insurance.

"Weighing your options with a trained professional is always a smart move, especially if you're unsure of what you exactly need," explains Crownover.

Discussing your individual business needs with a licensed insurance agent, such as one through ADP® affiliate, Automatic Data Processing Insurance Agency, Inc. (ADPIA®) could help you to stay compliant with laws and regulations, as well as get the most out of your insurance plans. For example, ADP's Pay-by-Pay® Premium Payment Program* could be a great option to help you manage your premium payments.

"Workers' compensation is a business investment," concludes Crownover. "If you purchase the right coverage now, you won't just protect your employees – you'll eliminate a lot of your own worries later."

To learn more about protecting your employees and your business in California, check out ADPIA, for the latest in workers' compensation insurance.



*ADP's Pay-by-Pay is a payroll enhancement feature of ADP's payroll processing services. Clients must be using ADP's tax filing service to take advantage of the Pay-by-Pay Premium Payment Program.

Automatic Data Processing Insurance Agency, Inc. (ADPIA) is an affiliate of ADP, Inc. All insurance products will be offered and sold only through ADPIA, its licensed agents or its licensed insurance partners; One ADP Blvd. Roseland, NJ 07068. CA license #0D04044. Licensed in 50 states. Certain services may not be available in all states with all carriers. Some carriers may charge an additional fee for services. This information is not intended as tax or legal advice. If you have any questions, contact a tax or legal professional. ADP, the ADP logo and ADPIA are registered trademarks of ADP, Inc. Copyright © 2024 ADP, Inc. All rights reserved.