Question:
My husband and that I own a little grocery in California. We don’t have any employees, but our nephew helps out at the store. He usually comes in the afternoon and closes up for us. The other day, he told me that he had a close call at the shop—he slipped on some water and almost fell. Luckily, he caught himself and wasn’t hurt. But this got me thinking, what would happen if he did get hurt? Am I alleged to carry workers’ compensation insurance for him? What about for ourselves?
Answer:
In answer to your first question, yes, you ought to do workers compensation audit for your nephew. California law requires every employer within the state with a minimum of one employee to possess this insurance. Your nephew is taken into account your employee because you arranged to possess him to do the work for you. As a result, you should treat him in the same way that you would treat someone that you hired through a formal job application process.
You might be thinking: Can’t we avoid getting worker’s comp insurance if we classify our nephew as an independent contractor? While it’s true that you don’t need insurance for independent contractors, it’s unlikely that your nephew would qualify as an independent contractor. When California courts are deciding whether a worker is an independent contractor or an employee, they appear at several factors, especially the quantity of control that the business has over the way the individual performs the work. In this case, because your nephew is functioning at your shop, under your supervision, and consistent with your rules, he will probably be considered an employee.
For more information, see our article on how government agencies classify workers as independent contractors or employees.
If the state finds out that you simply don’t have the required workers’ comp insurance, you'll face serious consequences including fines ($1,500 per employee or twice the quantity you would’ve paid in insurance premiums, whichever is more) and even misdemeanor charges. (Cal. Labor Code §§ 3700, 3700.5, 3722 (2018).) Also, if your nephew got hurt at the store, he (or his parents) could file a personal injury lawsuit against you (see our article on once you can sue outside of workers’ compensation).
In answer to your second question, the workers’ comp policy might not need to cover you and your husband. But it could depend on whether your business is a sole proprietorship (which can be owned by a married couple in California), a partnership, or a limited liability company (LLC). The rules about insurance requirements and waivers for working partners or general managers are often complicated. If you have questions, you can ask your insurance broker, contact the California Department of Workers’ Compensation Information and Assistance Unit, or speak with a California lawyer who’s experienced in workers’ compensation.
On a related note, because your nephew is an employee, you ought to confirm that you simply are complying with wage, overtime, tax withholding, and other state and federal laws that apply to employees. To learn more, read our article on what to do when you hire your first employee.
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