Friday, June 6, 2008

State targets employers evading workers' comp

San Francisco Business Times - by Chris Rauber

The state of California is stepping up efforts to identify and punish employers that don't provide workers' compensation coverage for their employees, cross-referencing data from other state agencies to help find cheaters.

The new program by the California Department of Industrial Relations implements Senate Bill 869, which became law last fall with Gov. Arnold Schwarzenegger's approval.

It was announced last month at a Northern California workers' compensation forum by John Duncan, the DIR's director.

Duncan said the state's new Insurance Coverage Program will help officials "systematically identify unlawfully uninsured employers" to target them for enforcement actions. All California employers are required to buy workers' comp coverage for employees or to obtain regulatory permission to self insure, and the new law provides funding for enforcement. Fines collected from violators will subsidize further enforcement, state officials said.

The new effort started in early May, and 500 randomly selected company filings are already being analyzed by the Workers' Compensation Insurance Rating Bureau, an industry-supported group, said DIR spokesman Dean Fryer. After that, the agency will inspect potential violators.

Last year, Fryer said, the state cited 2,536 California employers totaling $16.6 million in penalties; in 2006, the comparable numbers were 1,353 citations totaling $10.8 million.

Other agencies expected to cooperate in the new effort are the state Employment Development Department, which tracks unemployment and related claims; the Uninsured Employers' Fund, a $30 million insurance industry pool to pay for injured workers whose employers didn't provide coverage; various ratings agencies and other sources, according to the DIR.

Industry sources say a pilot program several years ago found that 9 percent to 10 percent of employers whose workers filed unemployment or other claims with EDD did not provide workers' comp coverage.

"You have to get the word out," John Suhr, president of Burlingame insurance brokerage Suhr Risk Services of California, told the Business Times. But even Suhr, who backs the new initiative, said it may take awhile to get it up and running. Suhr said uninsured workers who are injured on the job can receive treatment, thanks to the Uninsured Employers' Fund.

Suhr called the new program "a good beginning," but suggested that additional steps will be required. For example, the current penalty for employers who don't provide required coverage is $1,000 per employee, a price some gladly pay because it can be far less than the cost of providing regular workers' comp coverage.

Scott Hauge, president of San Francisco's Cal Insurance and Associates Inc. insurance brokerage, and a well-known small-business advocate, said 1.1 million businesses statewide have employees, and 100,000 likely operate without proper workers' comp insurance, so the problem "is very substantive."

Legislation is being considered in Sacramento that would dramatically increase penalties, possibly by forcing violators to fork over up to three years' worth of payments equivalent to the workers' comp premiums they should have paid into the system.