Workers’ Compensation Insurance: Understanding Why as a Landlord, You Need It!

Workers’ Compensation Insurance: Understanding Why as a Landlord, You Need It!

By James B. Coady, Owner, The Coady Insurance Agency

• You may not realize it, but that so-called “independent contractor” or “occasional handyman” may be your “employee.” Workers’ compensation insurance is a must for all rental property owners with at least one employee, whether you call someone your employee or not!

In California, apartment owners are legally required to carry workers’ compensation insurance if they have “at least one employee.” While this may sound simple, property management introduces complicated nuances where owners frequently cross into “EMPLOYER” territory without realizing it. The person you pay as the so-labeled “independent contractor” or the “part-time handyman” may be miscategorized by you and might just be your employee requiring you to be covered under a workers' compensation policy.

Caution: The Worker May Likely Be Your Employee

In California, workers are legally presumed to be “employees” rather than independent contractors. To classify a worker as an independent contractor, all three prongs of the strict "ABC Test" codified under California’s Assembly Bill 5. The ABC Test Criteria requires that you or your company prove all three of the following conditions have been met to validate an independent contractor status:

• A (Control): The individual is completely free from the control and direction of the hiring business, both by contract terms and in actual daily performance.
• B (Core Business): The worker performs tasks that fall entirely outside the usual course of your or your company’s (as the case may be) main business operations
• C (Independent Trade): The individual is customarily engaged in an independently established trade, occupation, or distinct business of the same nature as the work performed for you or your company.

Again, unless all three of the above A, B, and C criteria are met, the person you or your company is paying may in fact be an “employee.” In determining the proper classification of the person being paid as either employee or contractor, it is always best to seek appropriate legal advice relative to your specific situation.

 Why Do Landlords Need Workers’ Compensation Insurance?

The primary reasons rental property owners and managers need workers’ compensation insurance coverage include:

• Your Resident Managers are Your Employees. Under California law and reinforced by local regulations like the City of Los Angeles’ Rent Stabilization Ordinance (RSO), any residential building with 16 or more units must have an onsite manager, janitor or housekeeper living on the property. Because at least one onsite manager or other individual is legally defined as an employee (not an independent contractor), having 16 or more units automatically creates a mandatory employer/employee relationship- meaning, as a property owner or manager, you must carry workers' compensation insurance by law.
• The “Uninsured Subcontractor” Trap. Property owners and managers routinely hire handymen, painters, and landscapers. Under California’s strict employment laws, If you hire someone as an independent contractor who does not carry their own workers’ compensation insurance coverage, and they get hurt on your property, they instantly become your employee by default. You fully become responsible for their medical bills and lost wages.

Beware: Many property owners who hired a day worker from the local Home Depot to, for example, trim some trees and the worker fell from a ladder and got badly hurt found themselves in a mountain of legal problems faced with thousands of dollars in legal and medical bills. Don’t make the same mistake.

• Severe Legal and Financial Penalties. Operating without having workers’ compensation insurance in California can be a misdemeanor or criminal offense. This may also result in:
• Stop Orders Being Issued by The Division of Labor Standards Enforcement (DLSE) which can immediately shut down all operations or labor on the property.
• Fines starting at $1,500 per employee if no injuries have occurred, but can skyrocket up to $10,000 per employee, or up to $100,000 total, if an uninsured worker gets injured.
• Out of Pocket Liability that standard commercial general liability policies explicitly exclude when it comes to workplace injuries. Without workers’ compensation insurance, you as the owner are personally “on the hook” for the injured worker’s medical treatments, disability payments, and potential litigation.

Discount Workers’ Compensation Insurance Program Only for AAGLA Members

For more than 10 years, the Apartment Association of Greater Los Angeles has offered a discounted workers’ compensation insurance program exclusively for members through Employers Insurance Company. The program provides discounted workers’ compensation insurance exclusively to members in a one-of-a-kind program sanctioned by the California Insurance Commission – no other housing association in California is able to offer this type of discount, which gives members 5% off on most policies.

Members of the Apartment Association of Greater Los Angeles can purchase the minimum premium policy, starting at $750 per year. Currently, the State Fund’s minimum premium account is just $1,300 for policies governing class code 9011 (Apartment or Condo Complex Operations – Onsite resident manager/labor). For more information about the workers’ compensation insurance program and to obtain pricing, contact Jim Coady at (562) 400-6839, or by email at coadyinsurance1@att.net. Alternatively, members can complete an online application at www.coadyinsurance.com.

 James Coady is the owner of The Coady Insurance Agency.  The Coady Insurance Agency is an Independent insurance agency representing a wide client base and a variety of insurance lines and carriers.  The Coady Insurance Agency has served members of the Apartment Association of Greater Los Angeles for over 25 years.  As an independent insurance agent, The Coady Insurance Agency gives you the ability to choose the best carrier for your insurance needs. Call The Coady Insurance Agency today to obtain a free assessment of your insurance needs with a choice of which package fits you best.  For more information, contact James Coady at (562) 400-6839 or by email at coadyinsurance1@att.net.  Executive Director Daniel Yukelson recommends James Coady for your insurance needs.