You may think that, if you are a resident of California, you are automatically covered by workers’ compensation insurance. But this isn’t always the case. Certain types of job arrangements and company structures allow employers to avoid purchasing workers’ compensation insurance for employees. There are other instances where a worker’s status will prevent him/her from receiving the protections afforded by workers’ compensation.

These include (1) individuals who operate independently in their businesses and don’t qualify as employees; (2) non-profit organizations that hire volunteers; (3) relatives who assist a one-employee business; (4) sporadically employed household helpers; and (5) independent contractors hired from out-of-state to perform short-term work assignments in California.

Depending upon the type of job arrangement and/or company structure, employers may choose to purchase workers’ compensation insurance for employees or, alternatively, exclude employees from its protections by obtaining an exemption. To obtain an exemption, employers must complete specific forms and submit them to the appropriate governmental agency. Once the exemption application has been approved, the employer and its employees will no longer be subject to workers’ compensation liability.

Examples of business owners who may elect to exclude themselves and their employees from workers’ compensation liability include:

1. Corporate officers of S-Corps and C-Corps;
2. Members of Limited Liability Companies (LLCs); and
3. Partnerships.

To be eligible for an exemption, the exclusion application must be completed and submitted to the appropriate governmental agency prior to any work-related injuries occurring. Employers must keep all signed waiver and proof of submission documents relating to the exemption for future reference. If an employer fails to complete and submit the exemption application to the government, it will be deemed liable for workers’ compensation liability.

In addition to exempting themselves and their employees from workers’ compensation liability, sole proprietors operating in California may also opt to exclude themselves from the liability. This means that should the proprietor suffer a work-related injury, he/she would not be entitled to benefits from a workers’ compensation policy. However, if the proprietor hires additional employees and they suffer a work-related injury, the proprietor would immediately become responsible for providing workers’ compensation benefits.

Many sole proprietors voluntarily elect to purchase a workers’ compensation policy for themselves and their employees to provide themselves with financial security in the event of a work-related injury. Purchasing a workers’ compensation policy provides injured employees with medical treatment and lost wages resulting from the injury.

Workers’ compensation insurance is designed to protect both the employee and the employer from costly lawsuits arising from workplace injuries. Workers’ compensation protects employees from financial losses due to lost wages or medical expenses caused by a work-related injury. In turn, workers’ compensation protects employers from costly lawsuits stemming from workplace injuries.

There are several worker classifications that do not receive workers’ compensation benefits in California. Included in these classifications are:

1. Independent contractors;
2. Consultants;
3. Project-based workers;
4. Any worker classified as an “independent contractor” who performs work as part of his/her own independent business and is not controlled by the company paying them for the work.

Employers misclassify workers as independent contractors when they are actually employees. Misclassification can result in significant penalties and increased costs for the employer, including potential fines and reimbursement for unpaid workers’ compensation premiums.

Independent contractors who are misclassified as employees may be able to seek damages from the employer. Employers can use several tools to verify that their workers are correctly classified. Tools include:

1. Permits;
2. Business licenses;
3. Advertisements;
4. Employee contracts; and
5. Work history.

If an employer incorrectly classifies a worker as an independent contractor, it may face serious consequences, including fines and court judgments. Therefore, it is critical that employers properly classify workers as either employees or independent contractors.

Family members who are hired by a business are generally not automatically excluded from the requirement to provide workers’ compensation insurance for employees. Relatives who are hired by a business may be excluded from the requirement to provide workers’ compensation insurance for employees if the employer follows the proper procedures to obtain an exemption. Relatives who are hired by a business are likely to require workers’ compensation insurance if they are paid a salary or hourly wage, regardless of how frequently they are employed.

The employer should document the amount of money paid to the relative and how many hours the relative works each week. Documentation helps establish whether the relative meets the criteria to be considered a full-time employee and therefore requires workers’ compensation insurance.

As with any employee, if a relative is paid a salary or hourly wage to perform work on behalf of a business, the employer is required to provide workers’ compensation insurance. If the employer fails to provide workers’ compensation insurance, the employer may be held liable for damages to the injured relative.

Household domestic workers, including occasional babysitters, irregular cleaning help, and occasional lawn mowing workers, may not be required to carry workers’ compensation insurance depending on the frequency of their work and the number of employees that the employer has. An employer is generally required to provide workers’ compensation insurance to any domestic worker who receives a weekly salary for their work. This includes babysitters and cleaners who work for a single family on a regular basis.

Regardless of whether the domestic worker is hired on a full-time, part-time or occasional basis, the employer must track the hours the worker spends at the employer’s residence. The employer is also required to keep records of the salary paid to the domestic worker. Proper tracking of hours and salary will help avoid confusion regarding the classification of the domestic worker and whether workers’ compensation insurance is required.

The employer should also consider the tax implications of employing a domestic worker, particularly if the employer intends to claim the worker as a dependent on their income tax returns. If the employer wishes to claim the domestic worker as a dependent, the employer must ensure that the domestic worker is classified as a dependent under the Internal Revenue Code and report the worker accordingly.

For help with your California workers’ compensation claim, contact LG Law Center today.