WHAT IS WORKERS’ COMPENSATION INSURANCE?
It is a policy issued to a business owner which provides them with insurance coverage for the costs of work related injuries to their employees. This type of insurance pays for all costs associated with a workers’ injuries such as, medical bills, lost wages, rehabilitation, and permanent disability or death. The benefits under a workers’ compensation policy are set by the state’s workers’ compensation regulatory commission.
HOW IS WORKERS’ COMPENSATION PREMIUM DETERMINED?
This is rather simple. The premium is a percentage of your estimated pay roll for the policy term. Since the risk of injuries to workers varies by the type of work they perform, each business is assigned a specific classification which represents the degree of hazard in their industry. For example, if you own a convenience store which stays open later than 11:00 pm, your workers’ compensation classification code would be 8061 – Store- Convenience -retail. Note both the classification number and the description are set by the state under section 11658 of the California Insurance Code. There are approximately 500 classifications which are published by the state to cover every industry, and business in California. The premium rate for each classification is determined by the degree of hazard of injuries in the industry it represents. i.e. A convenience store’s premium rate is lower than a construction contractor’s, and higher than a telemarketing firm’s.
DO I HAVE TO HAVE WORKERS’ COMPENSATION INSURANCE?
If you are operating a business in the state of California, and employ any workers, you are required by the state labor commission to have workers’ compensation insurance. The only businesses which are exempt from this rule are the ones operated solely by the owners with no employees. In other words, if you have any employees including occasional or seasonal part time help you must obtain workers’ compensation coverage. If you operate without it you run the risk of heavy fines, and possible shut down of your business. An employee is considered to be anyone who works for the business, and is not a legal owner. The relatives including the children of the owner, who do any work for the business are also considered to be employees, even if such relative or children are donating
time without pay.
There is another reason for you to have workers’ compensation insurance, and that is to protect yourself from financial disaster. The medical costs of treating an injured worker, the lost wages, and other costs associated with it could be extremely burdensome for any small or large business, and could put their assets in jeopardy.
ARE OWNERS COVERED UNDER A WORKERS’ COMPENSATION POLICY?
They are covered only if they want to be. In other words, the owners have the option to include or exclude themselves from coverage. This would mean if they are included in the coverage, then they are also entitled to the benefits in case they are injured. If you choose to be included, then your pay roll would also be included in the calculation of your workers’ compensation premium. You can also elect to be excluded from coverage; in this case you would not be charged the premium for your pay roll.
WHO IS CONSIDERED TO BE AN OWNER?
Who can be excluded is determined based on the legal form of ownership of your business. The three most common legal ownership entities used by businesses are as follows:
1. Sole proprietorship or individual ownership – in this case, the individual, their spouse and their resident relatives can be excluded from coverage.
2. Partnership – All partners can be excluded, spouses and relatives can not be excluded
3. Corporation – All share holders who are also officers can be excluded only if the officers own 100% of the stock of a corporation. Officers who do not have shares or share holders who are not officers can not be excluded. Spouses and relatives can not be excluded…