Do I Need Workers’ Compensation Insurance For My Small Family-Run Business?

July 27, 2021
Sacks & Zolonz, LLP
Workers' Compensation Defense

In the world of small businesses, family-owned and operated companies make up 90% of all enterprises. Occasionally, a family-run business may ask a nephew for help at the store after school. Perhaps a small restaurant employs their youngest daughter as hostesses on the weekends.

Should your small family-owned business carry workers’ compensation for a nephew or daughter’s part-time contributions?

California employment law can be challenging to navigate, especially for small business operators. At Sacks and Zolonz, LLP, our Los Angeles workers compensation defense attorneys have the answers you need to stay legal and financially solvent.

Requirements To Carry Workers’ Compensation In California

According to California state law, even if a small business has one employee, they are required to carry workers’ compensation. Therefore, whether it is a nephew or daughter working part-time, they are still considered your employee and are subject to be treated in the same manner an individual hired through a formal job application process would be.

Can I Classify My Family Member As Independent Contractors?

While a business is not required to have workers’ compensation for independent contractors, your part-time employees may not qualify.

To be considered an independent contractor under California Law, workers are subjected to the ABC test;

  • Can a worker control their schedule, be free from control or direction, and operate independently of the hiring entity?
  • Will the worker be performing duties and tasks outside of the hiring entity’s business?
  • Is it a normal and regular practice for the worker to perform these tasks? Do they have an established trade, occupation, or business that involves the same duties and responsibilities?

Unfortunately, it is unlikely your family members performing part-time work will qualify as independent contractors under California’s AB-5 Worker status.

What If I Do Not Have Workers’ Compensation?

If California becomes aware you are without workers’ compensation insurance, it could severely hurt your business.

Not carrying the proper worker’s compensation insurance is a criminal offense under the law;

  • Classified as a misdemeanor
  • Punishable by a fine of $10,000 up to $100,000
  • Punishable by imprisonment in the county jail of up to 1 year

Also, failing to carry workers’ compensation coverage can leave you open to employee civil action. Civil lawsuits can be especially damaging to a small business and may force its closure. The court could order a significant amount in damages to be paid to the injured employee on top of court-mandated fines and court costs.

How Sacks & Zolonz, LLP Can Help

If you are the owner of a small business in need of guidance, let our skilled and experienced workers’ compensation defense attorneys in Los Angeles, California, help. At Sacks & Zolonz, LLP, we help uninsured employers face a wide range of penalties. Our expert litigators have a long track record of resolving legal matters and assisting with risk management to prevent forced dissolution or bankruptcy.

Call and schedule a free consultation of your circumstances and let Sacks & Zolonz, LLP better protect your company in the future. You can contact us by clicking here or calling 310-216-7778.

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