Division of Workers' Compensation - The
California workers' compensation system
Workers' compensation is the oldest social insurance program; it
was adopted in most states, including California, during the
second decade of the 20th century. It is a no-fault system,
meaning that injured employees need not prove the injury was
someone else's fault in order to receive workers' compensation
benefits for an on-the-job injury.
The workers' compensation system is premised on a trade-off
between employees and employers -- employees are supposed to
promptly receive the limited statutory workers' compensation
benefits for on-the-job injuries, and in return, the limited
workers' compensation benefits are the exclusive remedy for
injured employees against their employer, even when the employer
negligently caused the injury.
This no-fault structure was designed to -- and in fact did --
eliminate the then prevalent litigation over whether employers
were negligent in causing workers' injuries. Litigation is now
over other issues, such as whether the injury was sustained
on-the-job or how much in benefits an injured worker is entitled
There are three basic parts to the workers' compensation system:
The benefit structure defines what injured workers are entitled
to receive when they sustain an injury "arising out of and in
the course of" their employment. There are six basic types of
workers' compensation benefits available, depending on the
nature, date and severity of the worker's injury: (1) medical
care, (2) temporary disability benefits, (3) permanent
disability benefits, (4) vocational rehabilitation services, (5)
supplemental job displacement benefits, and (6) death benefits.
Injured workers are entitled to receive all medical care
reasonably required to cure or relieve the effects of the
injury, with no deductible or co-payments by the injured worker.
For dates of injury on or after Jan. 1, 2004, an injured worker
is limited to 24 chiropractic and 24 physical therapy visits.
Generally, the employer controls the medical treatment for the
first 30 days after the injury is reported, and the employee is
then free to select any treating physician or facility. However,
if the employee has notified the employer in writing prior to
the injury that he or she has a "personal physician" -- a
physician or surgeon who has previously treated the employee --
the employee may be treated by that physician from the date of
injury. Choice of treating physician differs, however, if the
employer and employee have opted for a managed care program.
Temporary disability benefits
Those workers unable to return to work within three days are
entitled to temporary disability benefits to partially replace
wages lost as a result of the injury. The benefits are generally
designed to replace two-thirds of the lost wages, up to a
maximum of $728 per week.
Temporary disability benefits are payable every two weeks, on a
day designated with the first payment, until the employee is
able to return to work or until the employee's condition becomes
permanent and stationary.
Permanent disability benefits
Injured workers who are permanently disabled -- those who have a
permanent labor market handicap -- are entitled to receive
permanent disability benefits. A worker who is determined to
have a permanent total disability receives the temporary
disability benefit -- up to $728 per week -- for life. A worker
determined to have a permanent partial disability receives
weekly benefits for a period which increases with the percentage
of disability, from four weeks for a one percent permanent
disability up to 694.25 weeks for a 99.75 percent disability.
Permanent partial disability benefits are also payable at
two-thirds of the injured worker's average weekly wages, but are
subject to a much lower maximum. As of Jan. 1, 2004, the rates
are $220 per week for disabilities less than 69.75 percent and
$270 per week for disabilities rated at 70 to 99.75 percent.
Those with a permanent partial disability of 70 percent or more
also receive a small life pension -- a maximum of $257.69 per
week -- following the final payment of permanent partial
The percentage of permanent disability is determined by using
the Permanent Disability Rating Schedule and an assessment of
the injured worker's permanent impairment and limitations.
The Permanent Disability Rating Schedule specifies standard
percentage ratings for permanent impairments and limitations,
and provides for the modification of these standard ratings
based on the injured worker's age and occupation. The standard
rating is adjusted for age by lowering the rating for younger
workers and increasing it for older workers on the theory that
it is easier for younger people to adjust to a permanent
handicap. The standard rating is adjusted for occupation by
increasing the rating if the permanent impairment or limitation
will be more of an impediment in performing the worker's
occupation, and lowering the rating if it will have a lesser
The assessment of the injured worker's permanent impairment and
limitations is made by either the treating physician or a
"Qualified Medical Evaluator" (QME). The Division of Workers'
Compensation's Medical Unit appoints and regulates QME's. If
there is disagreement with the treating physician's opinion and
the worker is not represented by an attorney, he or she chooses
a physician from a three member panel obtained from the DWC
Medical Unit. If the worker is represented by an attorney, the
parties must attempt to agree on a physician to perform the
evaluation. If they are unable to agree, each side may obtain
evaluations from a QME of their choice. If the evaluations are
disparate, the amount of permanent disability will be determined
by negotiation or, if necessary, litigation.
Vocational rehabilitation services (for injuries before Jan. 1,
Injured workers who are unable to return to their former type of
work are entitled to vocational rehabilitation services if these
services can reasonably be expected to return the worker to
suitable gainful employment. This includes the development of a
suitable plan, the cost of any training, and a maintenance
allowance while participating in rehabilitation.
Once an injured worker is determined unable to return to his or
her previous type of work, the employer and worker jointly
select a rehabilitation counselor who will determine whether
vocational rehabilitation is feasible, and if appropriate,
develop a suitable rehabilitation plan. The goal of a
rehabilitation plan is to return the injured worker to "suitable
gainful employment" -- employment or self-employment that is
reasonably attainable and which offers an opportunity to restore
the injured worker as soon as practicable and as near as
possible to maximum self-support.
The maintenance allowance payable to an injured worker while in
rehabilitation is, like temporary disability benefits, designed
to replace two-thirds of lost earnings, but the maximum weekly
amount is lower -- $246 per week. The worker may, however,
supplement the maintenance allowance with advances of permanent
disability benefits up to the point where the worker is
receiving the same weekly amount as he or she received in
temporary disability benefits. Total costs for rehabilitation
are now limited to $16,000 for workers injured on or after Jan.
For dates of injury on or after Jan. 1, 2003, injured workers
who have legal representation may settle vocational
rehabilitation for a lump sum. Vocational rehabilitation does
not apply for dates of injury after Jan. 1, 2004.
Supplemental job displacement benefit (for injuries on or after
Jan. 1, 2004)
This is a nontransferable voucher for education-related
retraining or skill enhancement, or both, payable to a state
approved or accredited school if the worker is injured on or
after Jan. 1, 2004. To qualify for this benefit, the injury must
result in a permanent disability, the injured employee does not
return to work within 60 days after temporary disability ends,
and the employer does not offer modified or alternative work.
The maxiumum voucher amount is $10,000.
In the event a worker is fatally injured, reasonable burial
expenses, up to $5,000, are paid. In addition, the worker's
dependents may receive support payments for a period of time.
These payments are generally payable in the same manner and
amount as temporary disability benefits, but the minimum rate of
payment is $224 per week. The total aggregate amount of support
payments depends on the number of dependents and the extent of
their dependency. Generally, the maximum (where three or more
total dependents are eligible) is $160,000, though additional
benefits are payable if there continues to be any dependent
children after the basic death benefit has been paid.
benefit delivery system
Unlike most social insurance programs (e.g., social security,
unemployment compensation), workers' compensation in California,
as well as in most other states, is not administered by a
government agency. Workers' compensation benefits are
administered primarily by private parties -- insurance companies
authorized to transact workers' compensation and those employers
secure enough to be permitted to self-insure their workers'
When an employer becomes aware of an on-the-job injury, the
employer is expected to begin the process of providing the
injured worker the benefits to which he or she is entitled under
the law. The benefits are paid by either the employer (if the
employer is authorized to self-insure) or the employer's
The state's role in benefit delivery is to oversee the provision
of workers' compensation benefits, provide information and
assistance to employees, employers, and others involved in the
system, and to resolve disputes that arise in the process.
The vast majority of workers' compensation claims are handled
expeditiously and are administered without dispute or
litigation. These are, for the most part, the smaller claims --
those in which only medical care is provided and those in which
the injured worker is disabled for only a few days. These
smaller claims account for more than three quarters of all
workers' compensation claims.
The balance of the claims -- those in which there are
significant periods of disability or permanent disability --
account for the vast majority of costs and litigation. In these
more serious cases, litigation is common.
Most workers' compensation cases are litigated initially before
workers' compensation referees employed by the Division of
Workers' Compensation (DWC). Rehabilitation disputes are first
heard by a consultant in the DWC Rehabilitation Unit, and that
decision can be appealed to a workers' compensation referee. The
decisions of workers' compensation referees are subject to
reconsideration by the seven member Workers' Compensation
Appeals Board (WCAB). A WCAB decision is reviewable only by the
Most disputed or "litigated" cases are settled without a
decision being rendered by a workers' compensation referee. Most
case dispositions are compromise and release settlements --
settlements in which all future liability is released in return
for a stipulated amount.
Applicants attorneys fees must be approved by a workers'
compensation referee, and are generally 9 to 15 percent of the
settlement amount. Defense attorneys' fees are not regulated.
benefit financing system
The benefit financing system is the process by which employers
finance their liability for workers' compensation benefits.
Employers may finance their liability for workers' compensation
benefits by one of three methods: (1) self-insurance, (2)
private insurance, or (3) state insurance.
Self-Insurance -- Most large, stable employers and most
government agencies are self-insured for workers' compensation.
To become self-insured, employers must obtain a certificate from
the Department of Industrial Relations. Private employers must
post security as a condition of receiving a certificate of
consent to self-insure.
Private Insurance -- Employers may purchase insurance from any
of the approximately 300 private insurance companies which are
licensed by the Department of Insurance to transact workers'
compensation insurance in California. Insurance companies are
free to price this insurance at a level they deem appropriate
for the insurance and services provided.
State Insurance -- Employers may also purchase insurance from
the State Compensation Insurance Fund, a state operated entity
that exists solely to transact workers' compensation insurance
on a non-profit basis. It actively competes with private
insurers for business, and it also effectively operates as the
assigned risk pool for workers' compensation insurance.
In addition, there are two special funds that pay benefits to
injured workers under some circumstances: (1) the Uninsured
Employers Fund, and (2) the Subsequent Injuries Fund.
Uninsured Employers Fund -- When an employee is injured while
working for an employer who is unlawfully uninsured, and the
employer fails to pay or post a bond to pay the compensation due
the employee, the employee's compensation is paid from the
Uninsured Employers Fund. An attempt is made to recover the
amount paid from the uninsured employer.
About 1,000 to 1,500 new claims are filed with the Uninsured
Employers Fund annually, at a cost that has reached about $26
million per year. Most of this cost is paid from the Uninsured
Employers Benefit Trust Fund, which is financed by an annual
assessment paid by all employers.
Subsequent Injuries Fund -- When an employee has a previous
permanent disability or impairment and sustains a subsequent
injury, the employer is not liable for the combined disability,
but only for that caused by the later injury. However, when the
combined permanent disability is at least 70 percent and certain
other criteria are met, the employee may receive additional
compensation from the Subsequent Injuries Fund.
About 500 claims are filed with the Subsequent Injuries Fund per
year, at a cost of about $6.5 million. Claims are paid from the
Subsequent Injury Benefit Trust Fund account, into which all
employers are required to pay an annual assessment.