Even in difficult economic times, California isn’t cutting anyone any slack.

In an October 2009 industry bulletin, the California Contractors State License Board (CSLB) reminded employers that it and other state government agencies will be concentrating enforcement efforts on companies that either don’t carry workers’ compensation insurance or misrepresent the number of employees they have in order to get lower insurance rates. The enforcement will include sting and sweep operations.

California law requires employers to carry insurance that covers employees who are injured on the job or become ill due to the job. That’s the case even if they have as few as one employee or if the employees are temporary. Carrying less than the required amount is considered to be insurance premium fraud.

CSLB licensees must submit proof of workers’ compensation insurance coverage to CSLB, with either a Certificate of Workers’ Compensation Insurance from the insurer or a Certificate of Self-Insurance from the Department of Industrial Relations. This proof must be received by CSLB within 90 days of hiring someone. If the licensee doesn’t have employees, it is required to submit to CSLB an Exemption from Workers’ Compensation form, under penalty of perjury.

Penalties for not carrying workers’ compensation insurance can be severe. The penalty for a first offense of Labor Code Section 3700.5 is up to one year in county jail and a $10,000 fine. A stop order also can be issued on work projects, with fines of $1,000 per employee on the payroll at that time, up to $100,000.

The penalties for workers’ compensation insurance premium fraud are even stiffer. In addition to felony charges, failure to maintain the appropriate workers’ compensation insurance can result in a company’s CSLB license being suspended. In addition, any work performed with a suspended license is considered to be unlicensed, and CSLB can take disciplinary action against the license.

“We understand why businesses try to cut expenses, but cheating on workers’ compensation insurance is illegal,” said Steve Sands, CSLB registrar. “Employees are left unprotected if they get hurt, and contractors who break the law have an unfair business advantage over those who follow the rules. Fraud also drives up the price of insurance for all of us.”