What are the penalties for late payment of workers’ compensation benefits?

In a California workers’ compensation case, an insurance company must pay penalties to an injured worker when it fails to make timely benefit payments. The late payment penalty is generally between 10% and 25%, depending on the benefit and the reason for the delay.

There are two penalty provisions in the California Labor Code:

• § 4650 penalties of 10% for overdue payments of:
  1. temporary disability benefits
  2. permanent disability benefits
• § 5814 penalties of up to 25% for payments that are unreasonably late for:
  1. temporary disability benefits
  2. permanent disability benefits
  3. medical treatment (including out-of-state medical treatment)
  4. settlement funds
  5. mileage reimbursement
  6. any other payment the insurance company is required to make

In both sections, the penalty is calculated based on the amount that was not properly paid.

If an insurance company is late with temporary or permanent disability payment under 4650, it must pay the 10% penalty automatically.

For a 5814 penalty to apply, the injured worker has to show that the payment was late and that it was unreasonable.

In this article, our California personal injury attorneys will explain:

• 1. Why are there penalties?
• 2. Penalties under Labor Code section 4650
• 3. Penalties under Labor Code section 5814
  • 3.1. What is an unreasonable delay?
  • 3.2. How to claim a penalty under section 5814
• 4. What is the difference between 4650 and 5814?
  • 4.1. Both penalties can apply
• 5. The importance of raising the penalty issue

1. Why are there workers’ compensation penalties?

Penalties exist to:

• make any delayed payment costly to an insurance company
• avoid economic hardship for the injured worker by ensuring prompt payments¹

2. Penalties under Labor Code section 4650

Labor Code section 4650 applies to late payments of temporary disability benefits and permanent disability benefits.

If an insurance company does not make temporary or permanent disability payments timely:

• the payment shall be increased by 10%²

The payment is considered late if:

• it is not made within 14 days of the start of the payments³
• if subsequent payments are not made every two weeks after that

Section 4650 can apply:

• any time a disability payment is due
• at the time an injured worker wins a disability award at trial

Both temporary and permanent disability are paid every two weeks.

The temporary disability rate is two-thirds of an injured worker’s weekly earnings. If an injured worker earns $900 a week, the temporary disability rate is $600 a week. Therefore, every two weeks the injured worker will receive a check for $1,200.

The permanent disability rate is $290 a week for most injured workers. Permanent disability is paid when temporary disability ends. It is also paid every two weeks. Most injured workers will receive a check for $580 every two weeks for permanent disability.

Example: The insurance company receives a medical report that states Karen sustained cumulative trauma can’t work as of June 1st. The insurance company sends a check to Karen on June 18th for $1,400 for two weeks of lost wages and a check for $140 as a late payment penalty.

As the insurance company did not make the first temporary disability payment within 14 days, by June 15th, it had to also pay a 10% penalty of $140.

Example: Jane’s temporary disability ends because she goes back to work. But the insurance company does not start permanent disability payments for two months. They are late in paying $2,320 ($290 x 8).

The insurance company sends Jane a check for $2,320, plus a 10% penalty check for $232.

Example: Dave wins his case at trial on October 19th. The decision says the insurance company should have paid him $24,000 in permanent disability. The insurance company does not make the payments until November 29th.

The insurance company pays Dave $24,000 and a 10% penalty of $2,400.

Section 4650 applies to payments under section 4850 to workers comp claims by firefighters and police officers.

3. Penalties under Labor Code section 5814

Section 5814 states that:

If a payment to an injured worker has been unreasonably delayed or refused:

• it shall be increased by up to 25% of the amount delayed, or $10,000, whichever is less⁴

But if the insurance company discovers the late payment before the injured worker claims a penalty:

• the insurance company has 90 days to pay the amount delayed, plus a 10% penalty
• by doing this, the insurance company can avoid a 25% penalty⁵

At the time of settlement or trial:

• it is assumed that all penalties are resolved unless expressly excluded⁶

If a penalty payment is made under Labor Code section 4650:

• the 5814 penalty is reduced by any amount paid under 4650⁷

The penalty does not apply to:

• late payment to a medical provider for authorized treatment⁸

A claim for a penalty under this section:

• must be made within two years from when the original payment was due⁹

The injured worker can claim a penalty under Labor Code section 5814 if an insurance company is late with payments of:

• temporary disability
• permanent disability
• medical treatment
• settlement payments
• mileage reimbursement
• death benefits

The amount of the penalty is at the discretion of the judge.¹⁰ It can be less than but up to 25%.

3.1. What is an unreasonable delay?

The outcome of a 5814 claim often depends on deciding if the delay was unreasonable, but there is no set definition of an unreasonable delay. It depends on the facts and circumstances of each case. A seven-day delay due to a clerical error entering a change of address is not unreasonable.¹¹

The factors that go into a determination of an unreasonable delay are:

1. the amount of the payment delayed;
2. the length of the delay;
3. whether the delay was inadvertent and promptly corrected;
4. whether there was a history of delayed payments or, instead, whether the delay was a solitary instance of human error;
5. whether there was any statutory, regulatory, or other requirement providing that payment was to be made within a specified number of days;
6. whether the delay was due to the realities of the business of processing claims for benefits or the legitimate needs of administering workers’ compensation insurance;
7. whether there was institutional neglect by the defendant, such as whether the defendant provided a sufficient number of adjusters to handle the workload, provided sufficient training to its staff, or otherwise configured its office or business practices in a way that made errors unlikely or improbable;
8. whether the employee contributed to the delay by failing to promptly notify the defendant of it; and
9. the effect of the delay on the injured employee.¹²

Example: Jody settles her claim with a Compromise and Release. She is due $48,000 within 30 days of the settlement. The insurance company makes the payment after 35 days, five days late.

Jody does not automatically receive a 25% penalty. The judge has to go through the factors above and decide if there should be a penalty under section 5814 and, if so, determine a penalty percentage up to 25%.

3.2. How to claim a penalty under section 5814

An injured worker should claim a 5814 penalty in writing to the insurance company as soon as he or she suspects there is a late payment.

Once an insurance company discovers a penalty, it has 90 days to pay the original amount and a 10% penalty. By doing this, it avoids the 25% penalty.

The insurance company can “discover” the late payment from the injured worker. The injured worker loses the ability to collect the 25% penalty if he or she only informs the insurance company about the late payment without claiming a penalty.¹³

Example: Dennis receives a Stipulation and Award. The insurance company stops making the biweekly permanent disability payments even though there was an additional $14,000 due. Nine months later, Dennis asks the insurance company why the payments have stopped. There is no response from the insurance company.

Forty-seven days later the insurance company sends two checks to Dennis. One check is for $14,000. The other check is for 10% of that amount, or $1,400.

Dennis believes the delay was unreasonable, and he should receive a 25% penalty, or $3,500, under 5814. But Dennis did not “claim a penalty” before the insurance company was aware of its mistake, and the payment with the 10% penalty was made within 90 days.¹⁴

If Dennis had asked for the 5814 penalty in his initial contact with the insurance company, he would have had the opportunity for the 25% penalty.

4. What is the difference between section 4650 and section 5814?

The penalty under 5814 is 25% but has to be unreasonable, while the 10% 4650 penalty just has to be late.

Some late payments may have a reasonable explanation. However, if the payment was late and was for temporary or permanent disability, the 4650 10% penalty still applies. A delay of compensation by one week due to a clerical error is not unreasonable and is not a 25% penalty under 5814. But the payment is late; therefore a 10% penalty under 4650 applies.¹⁵

4.1. Both penalties can apply

There can be situations where both penalties can apply. But because the 5814 penalty is reduced by the amount of the 4650 penalty, the total penalty will never be above 25%.

Example: James temporary disability check is three months late. The insurance company pays the 10% penalty. James goes to court and argues that the payment was so late that it was unreasonable, and he should receive a 25% penalty.

The judge agrees and awards James a 25% penalty. But the 10% penalty already paid is subtracted, leaving James with a 15% penalty to collect.

Since the 10% penalty is required, the failure of the insurance company to pay it can be considered unreasonable.¹⁶

Example: The insurance company is late paying Julie $1,000 in temporary disability. As far as a section 4650 penalty, the reason does not matter. The insurance company should pay the $1,000 and the 10% penalty of $100. But the insurance company fails to do this.

Julie can now claim a 25% penalty under 5814 on the $1,100 because the insurance company “unreasonably” delayed the original payment and the 10% penalty under section 4650.

5. The importance of raising the penalty issue

An insurance company is required to pay benefits timely but may not inform an injured worker when it fails to do so. Therefore, it is up to the injured worker to understand his or her rights related to late payments of workers’ compensation benefits.

Call us for help…

For help with filing a workers compensation claim in California or completing workers comp forms, contact us. Our firm helps police officers, firefighters and other workers to get compensation for their job-related injuries.

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