Workers' compensation costs and small business viability in California

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.

Conclusion

All of these factors point to the need on the part of small business owners to aggressively manage safety practices and minimize accidents as much as possible. Second, the paradox and ethical dilemma of hiring undocumented workers and paying them less yet having to still insure them with the DWC will become a major issue as national healthcare reform is debated this year. The Federal Immigration Reform and Control Act of 1986 (IRCA) has been the catalyst however of courts throughout California ruling in favor of workers, regardless of their documented or undocumented status, charging fines and in some cases putting liens on small businesses that fail to comply with these laws. The worst offenders are those businesses that have the riskiest occupations, with roofers being the most prevalent. Too often a worker is hurt or falls from a roof and goes in for treatment, only to find the worker's compensation insurance was never paid. This ethical dilemma for small business owners will last long beyond this recession and will fundamentally re-order the economic landscape of states including California.