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California Targeting Employers For Not Providing Workers’ Compensation Coverage.

December 30th, 2008 Posted in Miscellaneous

The State of California (through the CA Department of Industrial Relations) has greatly increased its enforcement efforts to investigate and penalize employers that fail to provide workers’ compensation coverage for their employees. As many of you are aware, all California employers are required to purchase workers’ compensation insurance for their employees or to obtain regulatory consent to self-insure (which requires a net worth of at least $5 million, net income of $500,000 per year and posting of a security deposit). Workers’ compensation insurance is required even if you have only one employee.

Failing to have workers’ compensation coverage is a criminal offense. California Labor Code Section 3700.5 makes it a misdemeanor punishable by either a fine of up to $10,000 or imprisonment in the county jail for up to one year, or both. Additionally, the state issues penalties of up to $100,000 against illegally uninsured employers. And if an employee gets hurt or sick during work and the employer is not insured, then the employer is responsible for paying all bills related to the injury or illness. Moreover, if the Division of Labor Standards Enforcement (CA labor commissioner) determines that an employer is operating without workers’ compensation coverage, a stop order will be issued. This order prohibits the use of employee labor until coverage is obtained, and failure to observe it is a misdemeanor punishable by imprisonment in the county jail for up to 60 days, or by a fine of up to $10,000, or both. The Division of Labor Standards Enforcement will also assess a penalty of $1,000 per employee on the payroll at the time the stop order is issued and served, up to $100,000.

In 2007, California cited 2,536 California employers for penalties totaling $16.6 million. In 2006, California only penalized 1,353 employers for $10.8 million in penalties. In light of California’s budget crisis and the need to replenish the state coffers, I expect the 2008 numbers to reach at least 4,000 violators. Sacramento is also considering new legislation that would increase penalties by possibly forcing violators to pay up to three years worth of workers’ comp premiums that the employer should have paid.

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