Workers' compensation coverage is a benefit that applies to most California workers. This insurance pays for medical costs from work-related injuries, disability payments, and even death benefits if someone is killed in an on-the-job incident.
This coverage is one of the most important benefits for employees, which is why it is a legal requirement in almost all areas of the U.S. That means that for most employees in the state of California, workers' compensation insurance is a right paid for by the employer, even if they're the only employee.
A workers' comp policy even protects business owners from high-cost lawsuits when a hurt or sick employee chooses to sue.
But there are a few exceptions to this nearly-universal coverage. In this article, we'll look at who can be excluded from workers' compensation benefits and why they might want to be.
Who's Not Covered by Workers' Compensation in CA?
Those not covered by workers' comp insurance in California include independent contractors, executive officers, and volunteer workers. Here's more on the groups of people who may not be covered by workers' comp:
1. Sole Proprietors
If you are a sole proprietor with no employees, you are not required to carry workers' compensation coverage on yourself. There is no need to sign a waiver or take any action if your business is in this category. The single exception is roofers, who are required to carry coverage even if they don't have employees.
Even if it's not required, it's important for you to have some form of business insurance, such as disability insurance. Like workers' comp, this type of insurance covers the cost of work-related injuries and illnesses, but it also covers those that happen off the job.
2. Independent Contractors
Independent contractors work for themselves. If they have employees, they need to at least provide them with coverage. If they have no employees, there is nothing they need to do to be exempted from workers' comp.
It's sometimes difficult to differentiate an employee from an independent contractor, but in general, if you choose the who, what, and where you do your business, you are an independent contractor. That means you're not protected under a client's policy.
3. Executive Officers
California labor codes section 3351 and 3352 state that a corporation, an officer or a board of directors member can choose to be excluded from coverage.
But, there are a few restrictions: the person must own at least ten percent of the stock in the corporation. Or, they could own as little as one percent if one of their family members (e.g., sibling or spouse) owns at least ten percent.
The person also has to be covered by a health insurance policy and must sign a written withdrawal indicating that they do not want coverage.
4. General Partners
If you are the general partner or a managing member of a limited liability company (LLC), you may also opt out of a worker's compensation policy by signing a waiver.
You can also earn this exemption if you're the owner of a professional corporation or the owner or board member of a cooperative corporation. If that's the case, you just need to be covered by both health insurance and a disability benefits policy.
5. Some Domestic Workers
If your parent, spouse, or child employs you for duties, such as childcare or household tasks, you're exempt from needing workers' comp. For example, if you pay your 16-year-old daughter to babysit your three-year-old every day after school, you wouldn't need to purchase insurance coverage for her.
Ready to transform your business intro a profit-pumping machine? Learn how with our monthly newsletter.
6. Deputy Clerk or Sheriff
In some cases in California, people designated as deputy clerks or sheriffs may work on a volunteer basis. If they are not receiving a paycheck, then they are not required to be covered by workers' compensation insurance.
7. Those Receiving Services or Aid
Those who work for a religious, charitable, or relief organization who are paid in kind—for example, with meals or housing—are not covered and cannot file workers' compensation claims with the organization that they are working for if they sustain a work injury. If they receive cash payments or a salary from the organization, however, they will need to be covered by workers' comp.
8. Volunteers, Including Sports Volunteers
Individuals who provide volunteer services for a non-profit organization that is exempt from federal income tax and who receive no compensation other than meals, lodging, or transportation, are not covered by workers' comp under state law. California law specifically singles out those who perform voluntary service as ski patrol workers or any who work at a ski area.
Workers' compensation laws also single out those who volunteer at sporting events, from Little League coaches to those who serve as ushers at major sports stadiums.
The only condition is that their compensation cannot be monetary. But they can still receive athletic equipment or uniforms, transportation and travel costs, meals, lodging, or other incidental expenses.
To Opt Out, You Must Sign a Waiver
Although workers' compensation is valuable, if you or someone you work with is in one of the categories above, coverage may not be needed or wanted.
To opt out of workers' compensation, individuals must sign a waiver stating they do not want coverage. That waiver must be signed in the presence of a notary public and filed with the California Department of Industrial Relations in their Division of Workers' Compensation.
It's important to note that even if someone opts out of workers' compensation, the injured worker retains the right to sue if they are injured.
If an uninsured employee is injured on the job, you may have to pay out of pocket for medical expenses and lost wages.
Why Would Someone Want to Opt Out of Workers' Comp?
Finances often play a primary role in the decision. An independent contractor running a small business with no employees may operate on a thin profit margin. Although they generally will—and should—have business insurance, the expense of workers' compensation makes it less than desirable.
For sole proprietors in low-risk jobs, this type of coverage may be an unnecessary expense. An accountant who runs a tax business out of their home, for example, is unlikely to face expensive injuries of any kind that would require a claim—although they should carry liability insurance on the chance that a client is injured while on their property. In that case, their homeowner's insurance may not cover the cost of a lawsuit.
There are also those who have self-insurance. This means you've set aside money to use if you are injured instead of having an insurance carrier take on your risks by issuing you a policy.
Although self-insurance is regulated through the California Self-Insurers' Security Fund and is not advisable in some circumstances, there are individuals who can save money by allocating a nest egg to provide for their needs if they are unable to work.
If you wish to become self-insured, your business will be evaluated for financial strength, your claims administration delivery system, and your loss prevention program to determine if you have the infrastructure in place to manage an in-house workers' comp system.
The website of the Office of Self-Insurance Plans (OSIP) has information on how to manage a self-insurance program.
Are All Other Employees Covered by Workers' Compensation?
California labor code states that almost all workers who are employed in the state must be covered by workers' comp. This includes undocumented workers, minors, and those who are incarcerated. Any business owner with one or more direct employees must have a policy to cover all their workers.
Managing your insurance can be simple if you work with a company like Hourly that streamlines the process. Hourly syncs your payroll directly with your workers' comp, so your premiums are always based on real-time payroll data—and not an estimate.
When in Doubt, Ask an Expert
Although it may seem like there are a lot of potential exemptions from workers' compensation in California, the vast majority of employees are covered according to state law.
Most of those who do not have workers' comp are small business owners who have no employees. Self-insurance is also a popular option, accounting for one in eight California workers.
If you have questions about whether or not you are required by law to have this type of insurance, why not talk to a licensed insurance agent who sells workers' comp policies? These professionals can help you determine the best way to protect yourself. That way, you can get on with running your business without worrying about insurance coverage.