Workers' Comp for the Self-Employed

In California, most employers must carry workers’ compensation insurance for every single person they employ, even if it’s a small employer of only one or two workers. Those who are sole proprietors, freelancers, or otherwise not an employer of anyone but themselves, however, do not have to buy workers’ comp coverage.

There is one exception to this rule: roofers. Even if you are self-employed, as a roofing contractor, you are legally required to carry workers’ comp for yourself. The reason for this rule is that the roofing industry is notoriously dangerous, and the chances of your getting injured and needing coverage (or of your family needing workers’ comp benefits following a fatality) are very, very high over the course of decades of roof work.

How do you know if you are considered an independent contractor or a true “employee?” There are a number of ways to figure it out. First of all, if you receive a 1099 form instead of a W-2 at the end of the year to use in filing taxes, rest assured you are being counted as independent. If no taxes were withheld from your check by the people you worked for, that’s another clue you are self-employed. Do you have your own EIN? Again, only business owners and sole proprietors have such a number. Finally, if you have a large degree of freedom in deciding your own schedule and in determining how to do your work, and if you are not provided with the tools and materials to do the work with, that usually also is a sign of being self-employed.

As only true employees, not subcontractors, are covered by an employer’s workers’ compensation insurance policy, there often arise disputes over who is or is not an employee after an accidental injury occurs. Some employers attempt to wrongly, and illegally, class people as independent contractors who actually qualify as employees under state law. This often results in a workers’ comp claim dispute and a court case to decide the injured worker’s status.

We have deep experience in determining the status of workers at the time of their injuries, and we won’t let a misclassification deny you your rightful benefits. However, also realize that even if you are an independent, if a company you did work for was negligent so as to cause an accident that injured you, you could still have legal grounds to file a tort action against them regardless of not being one of their employees.

You cannot sue your employee for compensation for an injury if you are covered by his workers’ comp policy. That’s part of the “deal” of workers’ comp: employees waive the right to sue employers in exchange for guaranteed benefits up to a certain limit should they be injured in work-related duties. An independent contractor could sue, however. So, you can’t live in both worlds - but you need to determine which applies so you know what is the right way to proceed. Additionally, sometimes it’s not the company you worked for as an independent, but the manufacturer or a property owner who may have been negligent and caused the injury.

When a workers’ comp claim is filed, under California law, the burden of proof is on the company you file against to prove you are not an employee but only an independent contractor. It does not matter how many hours you worked for a company either. Part-time workers are covered just the same as full-time workers. If you did work for the company, California presumes you to be an employee unless it can be definitely shown that you are not (or were not at the time of the injury.)

The next thing to consider is the fact that it can make sense for even the self-employed to buy a workers’ compensation policy. If your job is particularly dangerous, you should seriously consider making this investment and factoring it into your prices as a business expense. If you are a roofer, as we have seen, you are legally required to buy workers’ comp.

Also, note that many construction contractors who are technically self-employed nonetheless are covered by workers' compensation insurance policy of a general contractor they work for. Due to the commonality of accidents on construction sites, general contractors often wish to ensure all workers are covered and make coverage by workers' comp a part of the overall "deal" with their subcontractors. This really has the effect of protecting both parties, the one from injury expenses and the other from possible lawsuits or legal disputes following an injury - besides from a bad reputation if workers get injured on their job sites and are left financially ruined.

Some other independent contractors and even freelancers may sometimes be required to pay for being covered by workers’ comp while working for another company. This is done because there have been so many disputes over complex regulations concerning who is and is not covered by workers’ comp, that many companies have just “given up” and decided to cover everyone regardless. In that case, you have to agree to pay for the privilege of being covered in order to do work for that company. If this is the case, you have equal rights to receive benefits with those who are regular employees of that company.

Also, if a company with headquarters out of state covers you in this way, they cannot deny benefits because they are out of state. And to do business in California, all employers must provide workers’ compensation for all their California workers by state law.

Finally, note that it can be difficult to buy a workers' comp policy on your own if you don't work in a high-risk industry, such as roofing or construction. Thus, many ICs have to use a trust fund or band together to get a policy discount. Otherwise, they have to simply search until they find someone who will cover them at a reasonable rate.

An employer who fails to buy workers’ comp coverage for all of his employees is in violation of California law and can be prosecuted. This is a criminal offense, and the court can halt business operations with a “stop order,” the violation of which can carry an incarceration term of up to a year and a fine as high as $10,000.

Also, an employer’s trust fund could file a lien against it for refusing to pay the workers’ comp benefits of an injured worker. Plus, the DOL might impose fines of double what the company would have had to pay in premiums for the time they went illegally without workers compensation insurance (for one employee or for all employees) OR the DOL might fine the company $1,500 per employee.

Plus, if an injured employee has a valid claim, a company that illegally did not insure them can be fined $10,000. They can be fined $2,000 per employee even if an invalid claim for workers’ comp is filed, provided the worker in question should have been insured but was not. Finally, the maximum penalty for this kind of violation is a whopping $100,000!

On the one hand, some ICs could need legal help in defending themselves against the charge of not self-insuring before doing business. But on the other hand, these kinds of penalties often apply to companies who claim a worker was independent and (as such) did not need to be covered by their workers' comp policy, when in fact, it turns out they should have been covered according to California workers' comp law.

When you need to buy workers' compensation insurance as a self-employed worker - or if you decide you want to due to the risks of going without it, the natural question is "how much will it cost me?" The answer depends largely on which industry you are in. High-risk industries, like roofing, construction, welding, or auto mechanic work, for example, would have a high-risk classification.

The risk classification is based on two distinct factors: how frequent injuries are in that industry in California and how severe injuries typically are for that industry. It also depends on how much money the worker typically makes. That makes sense since workers’ comp benefits are based on medical bills and on a loss of income (with income being determined by averaging out checks across the period immediately preceding the injury.)

The bottom line is that coverage costs a lot more for high-income, high-risk workers; but the cost of going without it can be greater. There is the risk of not being able to collect any compensation to pay for bills and loss of income, and there is the risk of being fined for failing to buy workers’ compensation insurance when California legally required you to do so.

Whether you are self-employed and using your own policy or using a policy of a general contractor who included you in their coverage - or, whether you a true employee whose employee tried to deny you coverage, you are entitled to receive full workers’ compensation benefits. You do not get “second class” coverage because of your unique situation. If you are covered at all, you are equally covered.

Workers’ comp in California provides for several different types of benefits to injured workers. First of all, it covers you for all medical expenses arising from your work-related injury. The injury had to take place on the job site or while performing some job-related task off-site with authorization to do so. But that being the case, you don’t have to pay for any of the medical bills. You get up to $10,000 in medical coverage when you file for benefits even before the insurer decides on whether to accept or decline your claim. That allows you to take care of all emergency medical care without delay. For non-emergency care, however, you would have to get approval.

Next, you get a replacement of lost income, usually at the rate of two-thirds of your average pre-injury income. This amount, however, is 100% tax-free, so it's really worth more than it seems. It includes consideration of all bonuses, tips, and "perks." It isn't just raw salary-based. And you can file for compensation based on all the coverable jobs you work, not just your main job. You get compensation for income lost between the injury date and the date you return to work. This is called temporary disability (TD) benefits.

After you return to work, if your injury left you with a disability that is permanent, you will be allowed ongoing benefits, called permanent disability (PD) benefits. These may not continue for life in all cases but can continue for many years. Also, you can usually get a settlement agreement to bring closure to the PD benefits. That might replace them with a one-time, large settlement sum.

Realize that if you are totally unable to work any longer, you can get total PD benefits, while if your disability is partial, you would get partial PD benefits. This is based on the percentage of disability your doctor declares you to have. A 10% disability would be based off 10% of your pre-injury income, while a 90% disability would be based on 90%. Only in rare and extreme cases do 100% disability ratings apply, and usually, the rating (percentage) is somewhere between 10% and 30%.

Also, you can get supplemental job displacement benefits if you need retraining for your job or for a new job. A one-time return to work supplement benefit (of around $5,000 presently) can also apply. If you get the former, you have a good chance of qualifying for the latter benefit as well.

One type of workers’ compensation benefit we didn’t mention above is that of death benefits. When a fatality occurs that is work-related, there are a number of coverages that can apply. First of all, there is a burial expense allotment of up to $10,000. The medical bills stemming from the injury that accrued before the deceased’s death will also be covered.

The loss of income part of the benefit is the most complex by far. If your deceased loved one would have qualified for workers’ compensation income replacement benefits had he or she lived, then the spouse or children can collect in his stead. Next of kin can collect if no spouse or minor dependent exists.

The amount is based on the total disability rate (100% disability rating.) But the benefit will not necessarily continue indefinitely. A bereaved spouse can continue to collect for years and likely reach a settlement, but there are more limiting rules for dependents of the deceased worker. Once the dependent reaches his or her eighteenth birthday, payments will stop (because as an adult, he or she would have been expected to care for himself or herself at that point.)

A single dependent means the benefit can be up to $250,000, while three dependents would only get a combined total of up to $320,000. Partial dependents get even less. There are many complex details in figuring exactly how much of a benefit should be given and for how long and to whom. This is definitely a situation where an experienced lawyer is essential.

You will need extra help in filing for benefits with workers’ comp as a self-employed worker. There may be issues of where to turn in the claim form and how to communicate with those who are handling your claim, who may not actually technically be your employer. We can get you a claim form, but you can also get one from your general contractor or whoever is handling your claim. You and your lawyer may also need to talk with the relevant workers’ compensation insurance company from time to time to keep your claim on track.

Those acting in lieu of your employer or who may be your employer if you were wrongly designated as an independent contractor, have one business day to provide you with a claim form after you report your injury and request a form. The insurer has up to 90 days to approve or reject your claim. And they have to inform you of their decision. If your claim is turned down, you have the right to appeal. Don’t be discouraged by a denial or an attempt to reduce your claim because this is common and is also commonly overcome when a good attorney is fighting on your side.

After TD benefits are over because you are returning to work again, you can transfer to PD benefits. But at some point, it is normally desirable to either agree to a settlement or win in court. Most cases are settled out of court. The two main types of settlements are the stipulated findings and award, which gives you a certain amount bi-weekly as long as your injury or disability continues. In this case, you can appeal to adjust the amount if your situation changes. With a compromise and release type settlement, you get a large, lump sum payment. But this also means you can't get more if your situation changes later on. A good lawyer can help you decide which type of final settlement to pursue.

Normally, you only get 12 months (one full year) to file your workers’ compensation claim in California before forfeiting your right to file forever. This goes from the date of injury or from the date when you knew of the injury - or “should have” known about it. For a minor injured worker, the statute extends one year from the child’s 18th birthday. Also, if your original injury caused later additional injuries, you can file up to 5 years after the date of the original injury.

However, if you do not qualify for workers' comp benefits and are suing for compensation for an injury allegedly caused by the negligence of someone you worked for, you have a two-year statute of limitations in most instances.

It is important to file your claim or lawsuit as soon as possible if you are going to pursue compensation. The longer you wait, the more difficult it could be to collect evidence and gather testimony from witnesses. However, we at Workers’ Compensation Attorney can certainly maximize your chances of winning whenever you file.

At Workers’ Compensation Attorney, we know how to help you file for workers’ compensation benefits even if you are self-employed. There are many cases where this is possible, though it depends on your exact work situation. And if workers’ comp does not apply, and you are thinking of filing a tort action, we can advise you on that matter as well.

Contact us anytime 24/7 by calling 310-956-4277 for further advice and assistance and 100% free legal consultation!