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What Is a Ghost Workers Compensation Policy

What Is a Ghost Workers Comp Policy?

A ghost workers’ compensation policy is cost-effective and does not offer any real insurance benefits. It exists only so that businesses or contractors with no employees can state that they have workers’ comp insurance and continue to do business legally.

If the business or contractor later hires an employee, they would have to buy a real insurance policy to protect that employee. Otherwise, the employer could be subject to prosecution and punishment under California state law.


Why Do Ghost Workers’ Compensation Policies Exist?

According to the California Division of Workers’ Compensation (DWC), employers must bear the financial burden of paying for workers’ compensation insurance by themselves. It is illegal for a business to require or even ask an employee to help cover the cost.

A contractor or a business with no employees might find it prohibitively expensive, to say nothing of pointless, to purchase a real workers’ compensation policy when they have no employees who need coverage. However, they might still want to obtain proof of insurance if:

  • A prospective client asks to see such proof.
  • The laws in their state do not require them to carry a real policy.
  • Their state allows the sale of ghost policies.

Under such circumstances, instead of buying a real workers’ compensation insurance policy, the business might elect to purchase a ghost policy. While this policy offers no real protection, it does allow the business to legally claim they have workers’ compensation coverage and satisfy anyone who requests proof of coverage.

In addition, ghost policies typically cost much less than a real workers’ comp policy. This can save the business or contractor from spending a great deal of money on a product they do not need.


When Are Ghost Workers’ Compensation Policies Inappropriate?

A ghost workers’ compensation policy is only appropriate if the business has no employees. If you have even one employee, then LAB § 3700 requires you to protect that employee with a real policy that covers:

  • A portion of their lost wages if they end up missing work because of the injury
  • Payments for temporary and permanent disability
  • Any and all medical expenses associated with the injury
  • The cost of receiving additional training or education if they can never return to their job and need to seek a new position

If the contractor or business owner wants workers’ comp coverage for themselves for any reason (e.g., the work they do is very dangerous), they should also consider purchasing workers’ compensation insurance instead of settling for a ghost policy.

California law protects an employee’s right to workers’ compensation insurance. Businesses that do not provide appropriate coverage may be subject to serious penalties. The DWC states that these penalties include:

  • Hefty fines issued by both the county and the state
  • Up to one year in jail
  • Being required to pay out of pocket for your injured employee’s needs

You could also leave yourself open to a lawsuit. Workers’ compensation benefits protect employers from being sued by injured employees. If you fail to provide these benefits, the employee may have the right to sue you for the compensation they would have received through your insurance policy, as well as additional damages like pain and suffering.

Where Can I Buy a Ghost Policy?

Many insurance companies will sell ghost workers’ comp policies to qualifying individuals. You can ask your insurance agent about the availability and cost of such a policy. If you plan on hiring employees someday, you will also want to ask about the process of switching over from a ghost policy to a real one.

Before you purchase any insurance, it might be a good idea to check with a workers’ compensation lawyer in your area. They can tell you more about:

  • State laws that regulate how much insurance you need and when you need it
  • The pros and cons of purchasing a ghost policy versus a regular policy
  • What workers’ compensation insurance covers and when you would have to cover an employee’s injuries

What If My Employer Has a Ghost Policy?

If you are an employee of a business that has a ghost workers’ compensation policy, you should know that your employer is breaking the law and committing fraud. You have several options for dealing with this situation:

  • The DWC recommends that you can—and should—report an uninsured employer to the Division of Labor Standards Enforcement (DLSE). Failing to provide proper insurance is a misdemeanor.
  • You can meet with a workers’ compensation lawyer and tell them about your situation. The attorney can inform you of what laws your employer has broken and what you can do to report it and/or receive the compensation you need.
  • You can file a lawsuit against your employer and/or against any third parties who contributed to your workplace accident. This would both hold the negligent parties accountable and ensure you can pay for the things you need, including medical care.

Consulting a workers’ compensation attorney is a great way to protect your rights from anyone who tries to deny you benefits. It is their job to:

  • Help employees understand their rights
  • Fight for the benefits each employee deserves
  • Hold employers and insurers accountable if they refuse to pay fair benefits
  • Make sure the employee files their claim in accordance with all relevant laws and regulations

The state of California takes workers’ compensation matters very seriously. As an employee, you have the right to receive reimbursement for workplace injuries. As an employer, you must respect those rights and take care of your employees.

If and when disputes arise over workers’ compensation insurance, an attorney who handles such cases in your area can help settle them.

Learn More About Ghost Workers’ Comp Policies

KJT Law Group is proud to be able to help people like you understand the ins and outs of the workers’ compensation system. Dial (818) 507-8525 today to get in touch with our firm. We can tell you what a ghost workers’ compensation policy is and when you should purchase one versus a real policy.


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