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What Can Happen If My Business Doesn't Have Workers Compensation Coverage? - YouTube
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What can actually happen if I don't carry
workers compensation insurance? Well,
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this is a question that we've
received a lot in the past year,
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specifically in light of new legislation
passed in California and similar
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legislation being looked at
right now on the federal level.
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Workers compensation insurance coverage
is one of the few coverages that is
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required to have by law.
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Most states require businesses to have
some form of workers' compensation
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insurance coverage.
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So what can actually happen if your
business doesn't carry workers comp
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coverage? That's coming
up on this episode of the.
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How Insurance Works podcast, right now.
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Welcome to the How
Insurance Works podcast.
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The content in this podcast should not
be considered insurance advice and is for
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general informational purposes only.
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Insurance forms and endorsements
vary based on insurance company,
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changes in edition dates, regulations,
court decisions, and state jurisdiction.
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So please consult your
agent for further advice.
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And now back to How Insurance
Works with Mike MacGillivray.
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Welcome to the How Insurance Works
podcast. Thank you for tuning in.
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If we have not yet met here,
my name is Mike MacGillivray,
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I'm a second-generation licensed,
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property and casualty insurance
agent and broker at Shaw, Moses,
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Mendenhall & Associates
in Southern California.
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My goal is simply to help educate and
inform on various aspects of insurance and
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the insurance industry, so you can
make better informed decisions.
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What can really happen to me if I don't
carry workers compensation insurance for
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my business? This is a question that
we've been hearing a lot lately,
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as I mentioned in the
beginning of the podcast,
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and it's been complicated by recent
legislation in California, especially,
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and similar legislation that's now
being discussed on the federal level.
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Now none of this is particularly
a pleasant topic to talk about,
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but I'm going to answer the question
directly in this podcast and just simply
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convey how things are.
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What could potentially happen to you
if your business doesn't carry workers
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compensation insurance?
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Of course there's cost considerations
to workers comp insurance;
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we're certainly all sensitive to that at
our firm. And frankly, the legislation,
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especially in California,
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couldn't have come at a worse time with
so many businesses struggling as the
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result of a pandemic. But first,
a little bit of background.
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Workers compensation
insurance, as many know,
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provides coverage for your business if
one of your employees is injured on the
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job while working or gets sick
or ill on the job while working,
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and that includes
contracting COVID-19. We're
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going to go into more detail on workers
compensation insurance coverage on a
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separate podcast,
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but this is one of the few coverages
that is required by law to have.
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Most states require businesses to
have some form of workers compensation
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insurance coverage. But what's complicated
things recently is legislation,
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especially in California, called AB5.
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This legislation has required many
businesses to reclassify 1099 independent
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contractors as W2 employees.
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These are situations where previously
these were 1099 independent contractors,
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so classifying them as
W2 employees means now,
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they have to buy into unemployment
insurance, they have to pay payroll tax,
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and these businesses that
have to reclassify their
independent contractors as W2
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employees, of course now have to get
workers compensation insurance coverage,
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and in some cases where they
didn't need to have it before.
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A similar legislation is being
discussed at the federal level,
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it was formerly called the ProAct.
Now that didn't go anywhere,
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but it was recently
re-introduced as bill HR842.
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And if this passes, again
on the federal level,
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many more businesses may have to
purchase workers compensation insurance.
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To directly address what can happen
if your business doesn't have
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workers compensation, I'm going
to use California as an example.
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That's the state that I work in,
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but check with your own state laws
that govern workers compensation,
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they are all a little bit different.
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I'm just going to use California
here as an example in this podcast.
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And to be clear, this recent
legislation in California,
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AB5, it passed in January of 2020,
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it isn't imposing any new
workers compensation fines or
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penalties.
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What we're going to talk about here are
fines and penalties that were already in
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California Labor Code 3700.
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So AB5 didn't add any
new penalties or fines.
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Now with AB5,
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businesses had from
January to July of 2020 to
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reclassify employees,
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any 1099 independent contractors
that now need to be W2 employees,
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they had from January to July to
reclassify them, and in July of 2020,
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they had to make sure a workers
compensation insurance plan was in place.
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If you are a business owner in California,
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and if you do have questions about
how AB5 might affect your business,
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please reach out to a good employment
attorney. If you need a little help,
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I have some great colleagues
that specialize in AB5,
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they're employment attorneys. Reach out
to me at [email protected],
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I would be happy to be a
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resource and help you out.
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Now with workers
compensation in California,
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there was a rumor circulating for a
long time that if you don't have workers
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comp insurance, really you'd
be levied a $10,000 fine,
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and you could perhaps
spend up to a year in jail,
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but spending up to a year
in jail wasn't that likely.
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It was really more about the
fine. Part of that's true,
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but there are things that happen before
that, that many aren't aware of. Now,
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again, this isn't a
pleasant topic to address,
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because the penalties can actually be
more serious in California for not having
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workers compensation. Now, all of
this information in the podcast,
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this is coming directly from
my conversation over the
phone with the California
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Department Of Industrial
Relations Labor Board,
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so everything is coming direct
from them. And in California,
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workers compensation penalties and
fees are levied and administered by
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the California Department Of
Industrial Relations Labor Board,
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and the Bureau Of Field Enforcement Unit.
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I spoke directly also with an
agent that works for the Bureau Of
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Field Enforcement Unit,
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and what this Bureau Of Field Enforcement
Unit does is they conduct random
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industry sweeps, random
company inspections,
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and they will also pursue a company for
failure to carry workers compensation
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insurance, if they're
notified by a whistleblower:
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A whistleblower being an
employee of the company,
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perhaps an attorney of the...of
an employee that got injured,
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and a competitor of that business.
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According to the agent that I spoke with,
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it's often a competitor of the business
that finds out they don't have a workers
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compensation insurance plan and
can potentially blow the whistle,
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which was interesting to hear directly
from them. Now, the goal of this unit:
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It's not to pursue failure to carry
workers compensation as a criminal
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matter.
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They're just trying to impose initial
penalties to encourage a company to get
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workers compensation insurance,
if they don't already have it.
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So they're simply trying
to encourage the company,
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unfortunately by way
of fees and penalties,
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but they're trying to encourage the
company to put workers compensation
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insurance in place. So here are
the initial penalties. Again,
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this is coming directly from an agent
at the Bureau Of Field Enforcement Unit.
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If they do a random sweep,
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or if they find out that you don't have
work comp coverage upon inspection,
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they'll impose an immediate stop order,
right on the spot, during inspection,
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which means they can shut your business
down until you get a workers comp
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policy.
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No employee labor can continue until
that company purchases a workers
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compensation policy and has it
in force. And during this time,
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employers have to continue to pay
employee salaries for time lost ,up to
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10 days. So that's number
one. Number two: Besides
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the inspection and a possible
shutdown, there's also of course,
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a fine that goes along with this and
that fine is $1,500 fine per employee
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that was employed during
the uninsured period.
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So if you hadn't been insured
for two or three years,
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that is a $1,500 fine per employee.
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All of the employees that were employed
in that two to three year period.
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If that number is uncertain,
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we're not quite sure how many employees
we employ during that uninsured period,
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then their answer to that is,
they're going to levy a fine,
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and it could be a substantial fine based
on the number of employees you have
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during the inspection. So, as an example,
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if you have 20 employees during an
inspection, at $1,500 per employee,
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that's $30,000, so that is a
heavy, heavy fee to be levied.
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Now they also could decide, we're
not going to levy that fee on you,
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but what's easier for us,
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and what makes more sense is you should
have had workers compensation coverage,
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and you should have been paying a
premium for that coverage. Well,
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rather than impose a
$1,500 fine per employee,
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we're just going to have you pay the
premium that you should have been paying
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for work comp insurance, and
we're going to multiply that by 2.
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So you're going to have to pay double
the premium you would have had to pay if
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you had a workers comp policy.
So that's the first step:
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The Bureau Of Field Enforcement
Unit first tries to "encourage" you,
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and I know encourage is a,
is a weird word to use here,
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but they're trying to encourage companies
to get a workers comp policy by either
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shutting the business down and
imposing one of those two fines,
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$1,500 per employee, or the
premium you should have paid x 2,
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during the time you didn't
have work comp insurance.
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That's their first effort. Now, if
that first effort isn't successful,
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and the Bureau Of Field Enforcement
isn't successful in encouraging a company
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to get work comp insurance, then they
refer the case to the district attorney,
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and the district attorney is free to
pursue the matter as a criminal offense
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pursuant to California Labor Code 3700.5,
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which stipulates that failure to
carry workers compensation insurance
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could result in imprisonment
in county jail for a year,
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or a fine of up to or double the amount
of premium that should have been paid,
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but not less than $10,000. And
it's this, when it goes to the DA,
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this is where the rumor that, well, if
you don't have work comp insurance, it's,
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it's a possible year in jail and a $10,000
fine. This is where that comes from.
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It's after the Bureau Of Field
Enforcement unit does their job.
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And if they can't, well, rather,
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if they can't do their job and the
company doesn't get work comp insurance,
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this is when they refer
the case to the DA,
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so the rumor that kind of
circulates about, well,
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it's a $10,000 fine and a
potential you're in jail,
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that's at the point that it gets
to the DA. But prior to that,
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the Bureau Of Field Enforcement Unit is
going to levy their penalties and their
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fines. So once it gets to the DA,
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the DA has a few choices on
what penalty that they can levy.
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And again, it could be, they
could agree that to say, yes,
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we want you to pay double the amount
of premium that you could have paid.
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They can find you up to a $100,000.
So that is what can happen.
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Now, what about a situation,
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and here's where it gets a
little bit more complicated,
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in the case that an employee is injured
on the job and the company doesn't have
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workers comp insurance. Well,
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that case could very well end up in
front of the Workers Compensation Appeals
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Board or the WCAB, and
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that's part of the Department
Of Industrial Relations.
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And what happens in that case, you
have an employee injured at work,
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he's expecting workers comp to help
pay for him, but he doesn't have any,
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likely he's going to
hire an attorney. Now,
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if it's found that that case is
non-compensable, in other words,
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if it's found that, well, it
wasn't a work-related injury,
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it wasn't a work-related sickness,
maybe they got hurt on the weekend,
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and it actually is determined
that nothing happened at work.
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They can still levy a
fine against your company,
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the Workers Compensation Appeals Board.
So if it's not a legitimate case,
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they can still impose a penalty
of $2,000 per employee employed
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at the time of the claim.
If the case is legitimate,
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if it's compensable, that employee
really did get injured at work,
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and there's no workers
compensation insurance,
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then the WCAB can impose a
fine of $10,000 per employee
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that was employed at the time that
that employee claimed the injury.
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The employer and the business,
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in addition to these fines can also face
a civil suit from the injured employee,
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and likely will,
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and the employer may be required to
pay all of the medical expenses for the
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injured employee out of pocket.
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This is why I say this is not
a pleasant topic to address,
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but this simply is the way that it goes,
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and it's addressing the reality
of the situation - again,
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all of this comes direct from
the California Department
Of Industrial Relations
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Labor Board. What can we do about this?
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There's a lot of insurance companies out
there that do an exceptional job with
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workers compensation. In this situation,
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it's an advantage to work with
an independent agent or broker,
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if you find out you need
workers compensation,
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or you don't have it and you're
worried about cost, because, of course,
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we understand cost is
a consideration here.
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It's an advantage to work with
an independent agent or broker.
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They're simply going to have access
to more workers compensation insurance
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carriers, and it's nice to
try to canvas the market,
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approach as many companies or have that
agent approach as many companies on your
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behalf as they can.
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Each insurance company charges
different rates for different classes of
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employees for different job descriptions.
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Now it may be a little harder
if you're a first year business,
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a lot of insurance companies won't
always write a first year business,
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or even if you're not a first year
business you're first year to them because
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you haven't had workers'
compensation insurance before.
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So a lot of companies won't write
workers comp the first time for you,
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but if you can carry it for
a year or two or three years,
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build up a little bit of history,
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then your options open up with other
markets and other companies that you can
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approach. So certainly work with
an independent agent or broker,
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they simply have access to more
companies that offer workers compensation
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insurance. Again, if you're a
business owner in California,
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and you have questions about how AB5
might be affecting your business,
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speak with a good employment
attorney that specializes in AB5.
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If you need a little help there,
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I have a few fantastic colleagues
that are very, very good with it,
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they specialize in AB5, and
I'd be happy to help you out.
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You can reach out to me directly
at [email protected]. So
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again, not a pleasant topic, but I
hope that podcast was helpful. Uh,
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if you have a, what if situation
for us, let us know, visit us:
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howinsuranceworks.co is our website.
You can find our email on the website,
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email us from there, and we may
feature your question on the.
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Next podcast. You can find our social
media links on howinsuranceworks.co, and
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again, to reach me directly,
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feel free to email me at
[email protected],
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that's [email protected].
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Stay safe out there, and
we'll see you on the next one.
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