What is Workers Compensation Insurance?

Workers Compensation Insurance is mandatory in almost all US states. If you are a business owner and have employees, you must provide them with workers compensation insurance and obey the requirements of the law. This type of insurance covers medical bills and lost wages for injuries and occupational illnesses. Without the insurance provided an employer can sink financially since he would be responsible for all costs. So, workers compensation insurance protects both employer and employee.

California law states that every employer who has at least one employee must provide workers compensation insurance. Anyone who doesn’t provide workers compensation may face penalties such as one year in prison and minimum $10,000 fine. If authorities find out that that employer is illegally uninsured, they can set up a $100,000 penalty fine.

Make Sure to Follow the Statute of Limitations of California

The sooner you file a claim, the better. In case of an injury, the employer must be notified within 30 days. But when filing a workers’ compensation claim the statute of limitation gives you one year from the date of an injury. Federal employees, on the other hand, have three years to file a claim since they deal with federal law.

When Should You Consider Getting a Worker’s Compensation?

  • If you are ready to hire the first employee
  • If you have one or more employees
  • If you have one or more part-time employees

Note that even part-time employees are entitled to workers’ compensation insurance.

Who Can Be Considered an Employee?

In general, every person who performs labor would be considered an employee. Regardless of whether they are legally or illegally employed. A person who is in the service of another person under expressed or suggested contract is considered an employee. An employee can also be:

  • Minor or an alien
  • Officer appointed by public
  • Boards members
  • Children care workers
  • Performing personal duties
  • Person imprisoned in a correctional institution who performs assigned jobs
  • Working member of limited liability or partnership who earns wages no matter the profit

Independent contractors

Every person performs labor but not every laborer is an employee. Those who don’t have a contract and provide services for their employer are classified as independent contractors or sole proprietors. These types of workers can purchase workers compensation insurance for themselves even though they are not required by California law. An independent contractor will receive 1099 form at the end of the year to fill in the taxes instead of W-2 employee form.

Remember that sometimes an employee can be misclassified as an independent contractor where business owners try to avoid paying for their insurance. But you have the right to sue the business that caused an accident even if you are sole proprietor. Sometimes the accident can happen due to a property defect, so it is not always the company’s fault.

Think about getting the worker’s compensation because:

  • You work in a high-risk industry.
  • You work as a roofer, and this is not an option; they are required by law to have it.
  • Other businesses won’t deal with you since you can put them at financial risk.
  • When getting hurt at work you must shut down the whole business because you are the only employee.
workers comp

Benefits of Workers’ Compensation Insurance

Owning and providing workers’ compensation benefits both the employee and employer, mostly in terms of finances.

If you are an employee, workers’ compensation provides:

  • Medical care is needed for injury or occupational illness.
  • Permanent or temporary disability benefits since the injury prevents you from working and receiving wages.
  • Voucher that can be used for paying retraining or skill improvement if disability prevented you to perform work within 60 days of injury.
  • Death benefits include payments to spouses, children or some other dependent.

If you are an employer, workers’ compensation gives your business safety and peace of mind. It covers all medical expenses and lost payments for employees, and it can help with:

  • Rehabilitation services that can help your employee to recover sooner and get back to work.
  • In case of a lawsuit, workers’ compensation covers the costs.

What is Covered by Workers’ Compensation

  1. Workers’ compensation covers medical care for accidents in the workplace. It includes all from ambulance transfer, visits to surgical procedures. It also covers rehabilitation bills, both physical and psychological.
  2. Workers’ comp covers lost wages in the period an employee is recovering from the injury. Sometimes disability can last for days, weeks and even months.
  3. Unfortunately, there are those cases when injuries are fatal and cause death. Workers’ comp covers funeral expenses and further provides for worker’s family.
  4. Employers’ liability insurance is usually included in workers’ comp, and it protects the employer from potential lawsuits. So, if the employee decides to sue an employer, the insurance would cover lawyer’s fees, court expenses and settlements.

What is Not Covered

  1. If the employee decides to violate company policies by not wearing necessary equipment, such as a hard hat and suffers injury, he/she is not entitled to benefits. Another case is when an employee comes to work under the influence of drugs or alcohol and gets hurt.
  2. A worker must be actively employed at some workplace to receive benefits of workers’ compensation. If the injury occurred after the termination or layoff, an employee can’t ask for the benefits.
  3. Workers’ compensation would not cover wages for replacement worker. Even if you bring other workers to perform the work the injured employee will still be eligible for lost wages benefits.
  4. OSHA safety procedures must be followed if the company’s employees operate heavy machinery. If an employee gets injured by not following OSHA, the company will receive fines which workers’ comp does not cover.

Disadvantages Of Workers’ Compensation Insurance

For many years and in many cases, the system of providing medical care and lost wages for those injured on the job has been functioning perfectly. But there are some issues that can even harm the employees and leave them without proper compensation.

The disagreement

There were many cases in which an employer simply disputes the claim. If more than one worker makes a claim, the cost of the insurance will rise and this can take the case to court. Court process involves all legal fees, and it lasts longer than expected. So, workers sometimes wait for years until they get compensated for their injuries.


Sometimes employees may overemphasize or even fake the injury. It is usually impossible to establish the rate of deceit, and this largely jeopardizes the system’s validity.

The implementation of the law

It is required for employers under state law to pay for workers’ compensation. But many of them hire workers illegally, so when an employee gets injured, he/she is left without help. In a case like this, it may be difficult to enforce the law. But, some states in the US offer to help these workers.


Receiving compensation may hold back workers from looking for other jobs and achieving their full career potential. Sometimes it is because they received money and got comfortable with it. Also, to receive the payments, they should hold back from doing certain jobs because of proving the severity of injuries.

Steps In the Workers’ Compensation Process in California

The process can be different for each employee depending on severity of their injury, long and short-term effects, and how employer and administration respond to the claim. The following steps may not be relevant in the same way for each case, but you must get familiar with the process.

  1. An injury may be a one-time accident or an occupational illness that piles up for months. As far as the injury occurred at the workplace, you have a case for the claim. The employer should provide immediate medical attention.
  2. When you notify your employer of the injury, they should provide you with a Workers’ Compensation Claim Form which you have to complete and return. Later the claim will be reviewed by the administration.
  3. In case you didn’t choose and specified the name of your primary physician, you will need to select from employers’ medical provider network, or they will select physician for you.
  4. While still reviewing your claim the administrator should confirm and authorize initial medical care costs up to $10,000.
  5. Next, you wait for the approval or denial of the claim. By approving the claim administrator gives you rights on further medical bills. If in some circumstances, they don’t think you are eligible and deny the claim, you can pursue the appeal.
  6. The employees can continue with their medical treatment and rehabilitation upon physician instructions. The primary physician will also report to claims administration about your current progress and abilities.
  7. Furthermore, there is temporary and permanent disability, and this should also be determined by primary physician and reported to claims administration. Temporary benefits start as soon as you can’t work for more than three days. Permanent benefits are determined when the doctor reports you have reached maximum in the medical treatment.
  8. Make sure all benefits are paid in full and on time. Disability benefits are usually paid weekly while medical care bills are paid in a short period all at once.

Examples of Claims

Here are two examples of things that can go wrong and how to cover them:

  1. An employee was placing a box on a high shelf and accidentally knocked down another box which fell on his/her head. The employee suffered concussion and was held in the hospital for 24 hours for observation. The doctor suggested the employee should stay at home for a week before going back to work. The worker’s compensation insurance will cover ambulance transfer to the hospital, cost of visit and payments for the lost week.


  1. Many employees spend their whole day using a computer which can lead to serious discomfort in their wrists. For example, a data analyst suffers wrist discomfort that is gradually turning into pain. The employee received medical attention and was diagnosed with carpal tunnel syndrome which requires surgery. Operation, wages, and recovery of a data analyst will be covered by workers’ comp.

Where I Can Purchase Workers’ Comp Insurance?

  • You can purchase it from a private insurance carrier. Contact H&M Insurance and speak with their staff about custom policy tailored for your business needs
  • You can buy workers’ compensation from the state fund.
  • You also have the possibility to self-insure your business. Employers can apply to the Office of Self-Insurance Plans (OSIP) if meeting certain requirements and own business for at least three years.

How Much Is It?

In California estimated employer rates for workers’ compensation are $1.61 per $100 in covered payroll. There are several factors that will define your cost: payroll, location, number of employees, industry and risk factors, limits of coverage, and history of claims.

The higher-risk business is, the higher is the cost of your insurance, regardless which type of coverage you purchase.

How to Calculate Cost?

California has the most expensive rates, but the calculation formula is the same:

Workers’ Class Code Rate X Claims Experience Modifier X Payroll/$100 = Premium.

Are Employees Covered When They Work or Travel in Other States?

The policy “Declarations” contains states in which an employee can make an injury claim. If a worker is injured in another state (not listed in the policy), he/she has the right to file a claim there, and it wouldn’t be covered by the employers’ policy.

In the section “Other States,” the policy suggests that it can’t be used if its coverage must be purchased from the state compensation fund.

Make sure to notify your insurer if operating in other states, and they will place that state on the list of “Declarations” section.

Employers should make workplace safety a number one priority and try to reduce the number of claims.

  • An employer should provide proper training for new hires and in-service training for existing employees to perform their job safely. There are some high-risk industries like construction sites or working with hazardous materials where these trainings and drills are a must.
  • Make sure tools and equipment are in good condition and working.
  • From time to time, an employer should notify and inform the employees of hazardous materials as well as slip-and-falls and other potential dangers in the workplace.
  • Make sure exits and entrances are properly labeled in case of a fire or other emergency.
  • Paying premiums annually may cost less and can get an employer a discount than paying monthly coverage for employees

H&M Insurance – Get the Best Workers Comp Insurance for Small Business

H&M Insurance is a leading San Diego insurance agency. We provide financial protection against liability for work-related injuries. We offer innovative and cost-effective solutions, making sure that your business and your employees are entirely covered against unforeseen events.

We collaborate with the most prominent insurance agencies, such as Nationwide, The Hartford, FirstComp, and others, which allows us to create unique policies that meet everyone’s needs. Contact us today at (619) 296-0005 and learn more about the best workers comp insurance for small businesses in San Diego.