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Workers Compensation for Home Based Businesses

Workers Compensation for Home Based Businesses

When you own a home-based business, it can be easy to overlook certain insurance coverage in favor of simply getting the work done. Business from home can seem a very different animal than businesses run in a more commercial setting.

An oft-overlooked but important coverage is Workers Compensation Insurance. Your business and its employees are not provided any coverage under a homeowners insurance policy, and employees that are required to have work comp benefits under state law are specifically excluded.

How do you know if you need to provide workers compensation? How do you get this coverage?

Workers Compensation Law

Laws pertaining to workers compensation vary by state and can be found on the state’s Workers Compensation department web page. A list of basics by state with links to their websites can be found here.

In California, any business with one or more employees must provide workers compensation insurance coverage for those employees. The code does not qualify that by the financial size of the business or the location of that business. (Who is considered an employee? Read more about that here.)

What happens if you don’t provide workers compensation insurance for your employees? Again, this varies by state and is outlined on the state website. The California website lists these penalties that far outweigh the cost of getting and keeping workers compensation insurance:

“Section 3700.5 of the California Labor Code makes it a misdemeanor punishable by either a fine of not less than $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.”

In addition, if the Department of Labor determines that a business is operating without Workers Compensation insurance, they can issue a stop order, and the site goes on to explain:

“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 the greater of (1) twice the amount the employer would have paid in workers’ compensation premiums during the period the employer was uninsured, determined according to subdivision (c), or (2) the sum of one thousand five hundred dollars ($1,500) per employee employed during the period the employer was uninsured. [Labor Code section 3722(b)].”

How to Get Workers Compensation Coverage

Because this coverage is required, it is not difficult to obtain. Businesses can secure coverage in the following ways:

  1. Purchasing a Workers Compensation Insurance policy. The broker providing your other business coverages should be able to quote this policy for you.
  2. Risk purchasing groups. Some small businesses may find minimum coverage too expensive to buy on their own. Industry specific trade associations and some entrepreneurial associations may offer group coverage for members.
  3. Employee leasing. Most leasing companies offer workers compensation insurance as part of their package.
  4. Self-Insuring. This is typically an available option for larger businesses, so many home-based businesses do not qualify. Check with your state insurance department to find out if your business qualifies.

Workers Compensation coverage is heavily regulated in all states and it is likely that your state requires coverage for your home-based employees. A risk management analysis can help you determine the best way for your business to purchase this coverage.

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