Workers’ compensation is a system of no-fault insurance that provides medical and monetary benefits to employees or their survivors for work-related injuries, diseases and deaths.
The California Workers’ Compensation Act (WCA) defines employer responsibilities under the state’s workers’ compensation program. The Division of Workers’ Compensation (DWC) of the California Department of Industrial Relations monitors and enforces employers’ compliance with these requirements throughout the state.
Almost all California employers must secure workers’ compensation coverage for their employees. The WCA defines an employee as any individual working for another individual or organization who is not an independent contractor. Employers are bound by WCA coverage requirements even if they only have one employee, regardless of whether the employee works full-time or part-time.
Coverage requirements also apply for temporary workers. Temporary employment agencies, employment referral services, labor contractors and any other similar entities hiring temporary workers are solely responsible for their employees’ coverage.
To meet coverage requirements, employers can either secure a workers’ compensation insurance policy from a private insurance company licensed to do business in California or apply for self-insurance certification with the Office of Self Insurance Plans (OSIP).
A self-insured employer uses its assets, rather than an insurance policy provided by an insurance carrier, to cover its obligations under the workers’ compensation program. Employers that wish to self-insure must obtain authorization from the OSIP. Whether the OSIP will grant this authorization depends on an employer’s financial strength, proposed benefit delivery system and loss prevention program. To qualify, an employer must:
- Have at least $5 million in shareholder equity;
- Have net profits of $500,000 or more for the five years immediately prior to the application;
- Make a deposit based on the employer’s expected future liabilities, with a minimum amount of $220,000;
- Hire a certified third-party administrator or ensure that internal staff becomes OSIP-certified to process and handle benefit claims; and
- Provide the following documents:
- Certified, independently-audited financial statements; and
- A proposed injury and illness prevention program that meets, at a minimum, Cal/OHSA safety and health regulations.
Self-insured employers are subject to audits by both the DWC and OSIP. These audits are used to verify that self-insured employers are making benefits payments promptly and properly.
Certain employers are not allowed to self-insure. These employers include:
- Professional employer organizations;
- Leasing employers;
- Temporary service employers;
- Any employer in the business of providing employees to other employers; and
- Employers that have allowed their coverage to lapse (unless they receive authorization from the DWC).
Multiple employers can create self-insurance groups by combining their assets to insure against their individual liabilities. Authorization for group self-insurance requires employer groups to show they have sufficient financial stability to meet all their obligations under the WCA. In addition, a group of employers seeking to self-insure must:
- Operate in the same industry;
- Make a deposit equal to 135 percent of its estimated future liabilities;
- Have sufficient funds to cover any losses and administrative expenses for at least eight of out of 10 years;
- Obtain excess insurance for claims over $500,000; and
- Report to each member of the group any possible conflict of interest between the group and any vendors.
Self-insurance Annual Renewal
Self-insured employers must submit annual reports to show their continued compliance with eligibility requirements. These reports are also used to assess the adequacy of each self-insurance deposit.
Employers that are required to deposit additional funds to their initial deposit must make their contributions within 60 days of filing their annual report or by May 1 of the year in question, whichever is comes first.
COVERAGE NOTICE REQUIREMENTS
Employers subject to the WCA must display a notice in a conspicuous place stating that they have workers’ compensation insurance coverage that complies with the WCA. Failing to display this notice constitutes a misdemeanor and may be considered evidence that the employer does not have insurance.
The coverage notice must be available in English and Spanish and must include specific information about the employee’s rights and obligations under the WCA. The DWC has issued a model poster that employers can use to fulfill these requirements.
An employer that fails to provide this notice must allow its employees to be treated by their physician of choice for any injuries that occur during the time the notice is not displayed.
In addition to the posting requirement, employers must provide the same information to new employees at the time of hiring (or by the end of their first pay period). New employees must also receive instructions on:
- How to obtain appropriate medical care for job-related injuries;
- The role and function of the primary treating physician; and
- How to obtain and submit the form the employee must use to notify the employer he or she wants to use a personal physician.
- If an employer is insured, the insurance carrier is responsible for providing the employer with copies of a notice that contains all the required information for new employees.
INJURY Reporting Requirements
Under the WCA, employers have reporting obligations any time an employee sustains a work-related condition that results in:
- Lost work time beyond the employee’s work shift at the time of injury; or
- Medical treatment beyond first aid.
For this purpose, “first aid” means any one-time treatment and any follow-up visit for observation of minor scratches, cuts, burns, splinters, or other minor industrial injuries that do not ordinarily require medical care. Treatment that meets this definition is still considered “first aid” even if it is provided by a medical professional.
Within one working day after an employer receives notice or first obtains knowledge of an employee’s work-related injury that results in lost work time or medical treatment beyond first aid, the employer must:
- Provide the employee with Form DWC 1 (“Workers’ Compensation Claim Form & Notice of Potential Eligibility”);
- Ask the employee to complete the employee section of form DWC 1 and return it to the employer;
- Complete the employer section of the form; and
- Within one working day after receiving the form back from the employee, submit the fully completed form to its insurance carrier (or directly to the DIR, if the employer is self-insured) and provide a copy to the employee.
In addition, employers must fill out Form DLSR 5020 (“Employer’s Report of Occupational Injury or Illness”) and send it to their insurance carriers or claims administrators within five days after first receiving notice or obtaining knowledge of an injury.
In the event that an employee becomes the victim of a crime while on an employer’s premises, the employer must provide written notice to the employee, within one day of the crime, stating that he or she is eligible for benefits resulting from physical and psychiatric injuries.
Reporting for self-insured employers
When employers secure coverage with a policy from an insurance company, the insurance company will work with the employer on preparing, maintaining and submitting reports and records that the DWC requires to monitor compliance with California law.
An employer that decides to self-insure, however, must meet certain reporting obligations on its own. One of these obligations is to file an annual report as prescribed by the DWC. Annual reports must show:
- The amount of all compensation claims;
- The amount of benefits paid to date;
- An estimated amount of future liability on open claims under state and federal laws;
- The average number of employees and the total wages for each adjusting location;
- A list of all open indemnity claims; and
- The amount of security deposit made by the employer.
Please see the DWC website or contact Scurich Insurance for more information on workers’ compensation laws in California.