New California law requires higher compensation payments

SAN FRANCISCO -- A new law increasing the maximum payout to workers injured on the job has employers complaining it will make their insurance premiums too high.

But Tom Rankin, president of the California Labor Federation, says the increase is long overdue.

The increase was approved by Gov. Gray Davis last February and went into effect Jan. 1. Payouts hadn't budged since 1996, but as of Wednesday, workers with temporary disabilities will get $602 a week -- up from $490 a week. The amount will be $840 in 2006.

Businesses in California are required to carry workers' compensation insurance. Small business owners, like Jeff Dodge who runs La Farine Bakery in Oakland, say they will bear the brunt of the cost for the higher payments.

Dodge says under the new law his premium will jump to $28,000 this year from $18,000 last year. He paid only $12,000 in premiums for his 25 employees in 2001.

"That is so ridiculous," he said. "Suddenly I'm paying $16,000 more than I was two years ago."

He says it's taking money from profits he could use to expand his business or give his employees raises.

But Rankin says the recent rate increase is part of a natural cycle. Premium rates were artificially low following deregulation, he says, and employers were benefiting from that.

Premiums were first reduced after state insurance deregulation introduced new competition to the market. But insurance companies soon realized they couldn't afford to keep the prices so low, and premiums went back up.

Scott Hauge, owner of Cal Insurance and Associates, which searches out the lowest workers' compensation premiums for businesses, says he has seen rates increase between 30 and 40 percent since 2000.