If you are starting a business in Ontario, or anywhere in California, then you must get Workers Compensation Insurance. Today we take a deep dive into this type of coverage, from a basic definition to the specific coverage requirements it the Golden State.
What Is Workers Compensation Insurance?
Workers Compensation Insurance, or Workers’ Comp, helps pay for medical expenses and a portion of lost wages when an employee is injured while on the job.
It’s worth noting that Workers Compensation Insurance steps in only when an employee sustains an injury or becomes ill while performing tasks within the scope of their employment.
All other activities are excluded from Workers Compensation Insurance. So, for example, if a person gets hurt while enjoying their hobby (for example, playing sports, or doing renovations at home), their expenses won’t be covered by Workers Compensation Insurance.
Needless to say, this coverage protects workers. But it also helps you in case your business faces lawsuits from workers or their families.
Workers Compensation Insurance in California
California law requires employers with at least one part- or full-time employee to carry Workers Compensation Insurance. However, California businesses don’t have to include independent contractors in their Workers’ Comp coverage.
The ABC test offers a general framework to determine whether a worker is an employee or an independent contractor. According to this test, a person is considered an employee unless they meet all three following requirements:
- The person is independent of the hiring organization.
- The person performs work that is outside the hiring entity’s business.
- The person is doing work in an independently established trade, occupation, or business, that is the same as the work being requested and performed.
(Note that there are some exceptions to the ABC test, so make sure to seek the assistance of an insurance expert before making a decision.)
In addition to independent contractors, there are other cases excluded from the Workers Compensation Insurance requirement:
- Sole proprietors (although they may opt to get coverage)
- Executive officers and directors (so long as they fully own the business)
- LLC members (so long as they don’t work in the business)
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