Workers compensation systems and benefits

Worker's Compensation

In speaking with small business owners throughout California, it is clear that the rapidly escalating costs of Workers' Compensation Insurance are having a significant financial impact on their business. One small business, Rockwell's Cafe based in Villa Park, California has a quarterly payment of $35,000 to the California Division of Workers' Compensation (DWC), and this is considered at the low end of the scale relative to other restaurants and businesses. The intent of this paper is to evaluate how worker's compensation is having a very significant effect on small businesses' ability to stay in business, and also provide insights into how health insurance actually reduces workers' compensation claims for a business (Lakdawalla, Reville, Seabury, 2007)

The Human Resource Dilemma of Worker's Compensation

In many states including California, even if a business has just one employee there are required to carry worker's compensation insurance, even if the employee is undocumented (Query, 2006). Many small business owners ask why they must pay for worker's compensation for undocumented workers, yet the irony is that at times these workers are hired because they will work for significantly less than others. California has been a state that has upheld the rights of undocumented workers to be accounted for under worker's compensation insurance, with several courts referring back to the Federal Immigration Reform and Control Act of 1986 (IRCA) (Query, 2006). This is the paradox that many small business owners throughout California find themselves in today regarding worker's compensation. They cannot find documented workers who will take minimum wage for intermediate to advanced -- risk jobs including tree trimming, heavy landscaping or roofing, yet paradoxically these are the highest at-risk jobs according to the California Division of Workers' Compensation (DWC) (Nguyen, Kleiner, 2005). Factors that will reduce the amount of worker's compensation insurance employers must pay include if they offer health insurance, and what their previous safety history has been (Nguyen, Kleiner, 2005). The DWC also calculates insurance premiums through a benchmarking process that takes into account the frequency of on-the-job injury and the severity of injury by occupation. Roofers for example pay exceptionally high rates of worker's compensation insurance in California as a result.

Steps to Resolving the Dilemma of Worker's Compensation

The combined effects of the recession and the budget crisis in California are making it extremely difficult for small business in intermediate or high risk businesses to stay solvent. Many have had to sell to larger competitors or exit the business entirely, with the owner of Rockwell's selling to an investment group which manages small, independent cafes and restaurants. The bottom line is that the high cost of worker's compensation is forcing many employees to quit offering healthcare or risk not being able to stay in business. This supports the empirically-derived research that states workers' compensation is the only healthcare system for millions of Americans (Lakdawalla, Reville, Seabury, 2007). For small business owners resolving the ethical dilemma of hiring undocumented workers on the one hand to keep labor costs down but still paying worker's compensation insurance, especially in California, on the other, have had the net effect of reducing the employment rate.

Conclusion