In California, the employer pays for workers compensation benefits, either by buying an insurance policy or by qualifying to self-insure. The employee never pays. California Labor Code Section 3751 makes it a misdemeanor for an employer to take any contribution from an employee, or any deduction from an employee’s earnings, to cover any part of the cost of workers compensation. Labor Code Section 3700 requires virtually every employer with employees in California to secure that coverage. When an employer carries insurance, the carrier administers the claim and pays the benefits. When an employer illegally has no coverage, the Uninsured Employers Benefits Trust Fund can step in. Attorney Damoun Yazdi at The Accident Network Law Group helps injured workers throughout Southern California understand work injury claim options.

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Key Takeaways

  • Labor Code Section 3700 requires employers to secure payment of compensation, either by insuring with an admitted carrier or by obtaining a certificate of consent to self-insure from the Director of Industrial Relations
  • Labor Code Section 3751 prohibits any employee contribution or payroll deduction toward workers compensation costs, and makes a violation a misdemeanor. Nothing comes out of your paycheck to fund these benefits
  • Workers compensation is a no-fault system: Labor Code Section 3600 imposes liability without regard to negligence for injuries arising out of and in the course of employment, and it is generally the exclusive remedy against the employer
  • Insurance carriers pay authorized medical treatment and disability benefits on behalf of the insured employer, and larger employers approved to self-insure pay from their own funds under the oversight of the Office of Self-Insurance Plans
  • The Uninsured Employers Benefits Trust Fund can pay an award when an illegally uninsured employer does not, under Labor Code Section 3716, and the fund then seeks reimbursement from that employer
  • Failing to secure coverage is a misdemeanor under Labor Code Section 3700.5, with a minimum fine of $10,000 on a first conviction and $50,000 on a second or subsequent conviction
  • Two deadlines matter early: written notice to the employer within 30 days of the injury under Labor Code Section 5400, and one year to commence proceedings for benefits under Labor Code Section 5405

The Employer Pays, and the Statute Says So Twice

The answer to who pays sits in two places in the Labor Code, pointing in the same direction. Section 3700 puts the obligation to secure payment of compensation on the employer. Section 3751(a) closes the back door: no employer may exact or receive any contribution from an employee, or make or take any deduction from an employee’s earnings, directly or indirectly, to cover the whole or any part of the cost of compensation. Violating that provision is a misdemeanor. If you have ever seen a workers compensation line item on a California pay stub, something has gone wrong.

It is also worth understanding what the employer is buying. Under Labor Code Section 3600, the employer is liable for compensation for an injury sustained by an employee arising out of and in the course of employment, without regard to negligence, provided a list of statutory conditions is met. Those conditions exclude, among other things, injuries caused by the employee’s intoxication, self-inflicted injuries, injuries arising from an altercation the employee started, and injuries from voluntary off-duty recreational activity that is not part of the job. In exchange for that no-fault coverage, Section 3600 liability is generally in lieu of any other liability against the employer, which is why most work injuries cannot be pursued as an ordinary negligence lawsuit against the boss.

Private Workers Compensation Insurance

Most California employers satisfy Section 3700 by insuring with one or more carriers authorized to write workers compensation insurance in this state. The carrier issues the policy, collects the premium from the employer, investigates and administers claims, authorizes and pays for medical treatment, and pays disability indemnity.

The benefits themselves come from the statute rather than from carrier discretion. Labor Code Section 4600 requires that medical, surgical, chiropractic, acupuncture and hospital treatment reasonably required to cure or relieve the worker from the effects of the injury be provided by the employer, and if the employer neglects or refuses to provide it, the employer remains responsible for the reasonable cost the worker incurs obtaining it. Labor Code Section 4653 sets temporary total disability indemnity at two-thirds of average weekly earnings during the period of disability, subject to statutory minimums and maximums.

Carriers have financial reasons to keep claim costs down, and injured workers feel that as denied body parts, delayed treatment authorizations, disputed disability ratings, and quick low settlement offers. That is the practical reason many workers seek representation, not because the carrier is lawless but because the system rewards whoever documents the claim better.

Self-Insurance

Section 3700(b) allows an employer to secure the payment of compensation by obtaining a certificate of consent to self-insure from the Director of Industrial Relations, either as an individual employer or as one employer in a group. The program is administered by the Office of Self-Insurance Plans within the Department of Industrial Relations, which reviews an applicant’s financial strength, its proposed benefit delivery system, and its suitability for self-insurance.

Qualifying is not simply a matter of size. A private applicant must generally have been in business for three years in a legally authorized business form, must submit three years of certified, independently audited financial statements, must post a security deposit under Labor Code Section 3701 sufficient to secure its incurred liabilities, and must use a licensed third-party administrator for its first three years. Claims must be adjusted in California. If a self-insurer’s financial strength deteriorates, the Director can require a larger deposit or revoke the certificate.

For an injured worker, the practical difference is that a self-insured employer pays every claim dollar out of its own budget rather than from a shared insurance pool, so the incentive to contest a claim is more direct and more personal.

State Compensation Insurance Fund

The State Compensation Insurance Fund, commonly called State Fund, was created by the Legislature in 1914 alongside California’s first compulsory workers compensation law, and it is continued in existence under Insurance Code Section 11770 for the purpose of transacting workers compensation insurance. Its founding purpose was to make sure an available market exists for California employers, which is why many small businesses and employers in higher-risk industries are insured through it. State Fund competes with private carriers, is governed by its own board of directors, and is not a branch of the State of California, a disclaimer its own advertising is required to carry.

Uninsured Employers Benefits Trust Fund (UEBTF)

Some employers operate without the coverage Section 3700 requires. An employee injured while working for an illegally uninsured employer is not left without a remedy. Under Labor Code Section 3715, the worker may proceed directly against the employer before the Workers Compensation Appeals Board, and under Labor Code Section 3716(a), if the employer fails to pay the award or post the required bond within ten days after notification, the award is paid by the Director from the Uninsured Employers Benefits Trust Fund. The Legislature stated its intent plainly in Section 3716(b): the fund exists so that workers who happen to be employed by illegally uninsured employers are not deprived of workers compensation benefits.

The fund is a payer of last