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 between 10% and 25% depending on the benefit and reason for the delay.
There are two penalty provisions in the California Labor Code:
- § 4650 penalties of 10% for overdue payments of:
- § 5814 penalties of up to 25% for payments that are unreasonably late for:
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
- 4. What is the difference between 4650 and 5814?
- 5. The importance of raising the penalty issue
Penalties exist to:
- make any delayed payment costly to an insurance company
- avoid economic hardship for the injured worker by ensuring prompt payments1
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 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%.
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:
- the amount of the payment delayed;
- the length of the delay;
- whether the delay was inadvertent and promptly corrected;
- whether there was a history of delayed payments or, instead, whether the delay was a solitary instance of human error;
- whether there was any statutory, regulatory, or other requirement providing that payment was to be made within a specified number of days;
- 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;
- 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;
- whether the employee contributed to the delay by failing to promptly notify the defendant of it; and
- 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%.
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.
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
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.
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 Calfornia or completing workers comp forms, contact us at (855) LAW-FIRM. Our firm helps police officers, firefighters and other workers to get compensation for their job-related injuries.
State Compensation Insurance Fund v. WCAB (1998) 63 Cal. Comp. Cases 916, 921.
Cal. Lab. Code § 4650(d) If any indemnity payment is not made timely as required by this section, the amount of the late payment shall be increased 10 percent and shall be paid, without application, to the employee, unless the employer continues the employee's wages under a salary continuation plan, as defined in subdivision (g). No increase shall apply to any payment due prior to or within 14 days after the date the claim form was submitted to the employer under Section 5401. No increase shall apply when, within the 14-day period specified under subdivision (a), the employer is unable to determine whether temporary disability indemnity payments are owed and advises the employee, in the manner prescribed in rules and regulations adopted pursuant to Section 138.4, why payments cannot be made within the 14-day period, what additional information is required to make the decision whether temporary disability indemnity payments are owed, and when the employer expects to have the information required to make the decision.
Cal. Lab. Code § 4650(d).
Cal. Lab. Code § 5814(a) When payment of compensation has been unreasonably delayed or refused, either prior to or subsequent to the issuance of an award, the amount of the payment unreasonably delayed or refused shall be increased up to 25 percent or up to ten thousand dollars ($10,000), whichever is less. In any proceeding under this section, the appeals board shall use its discretion to accomplish a fair balance and substantial justice between the parties.
Cal. Lab. Code § 5814(b) If a potential violation of this section is discovered by the employer prior to an employee claiming a penalty under this section, the employer, within 90 days of the date of the discovery, may pay a self–imposed penalty in the amount of 10 percent of the amount of the payment unreasonably delayed or refused, along with the amount of the payment delayed or refused. This self–imposed penalty shall be in lieu of the penalty in subdivision (a).
Cal. Lab. Code § 5814(c) Upon the approval of a compromise and release, findings and awards, or stipulations and orders by the appeals board, it shall be conclusively presumed that any accrued claims for penalty have been resolved, regardless of whether a petition for penalty has been filed, unless the claim for penalty is expressly excluded by the terms of the order or award. Upon the submission of any issue for determination at a regular trial hearing, it shall be conclusively presumed that any accrued claim for penalty in connection with the benefit at issue has been resolved, regardless of whether a petition for penalty has been filed, unless the issue of penalty is also submitted or is expressly excluded in the statement of issues being submitted.
Cal. Lab. Code § 5814(d) The payment of any increased award pursuant to subdivision (a) shall be reduced by any amount paid under subdivision (d) of Section 4650 on the same unreasonably delayed or refused benefit payment.
Cal. Lab. Code § 5814(e) No unreasonable delay in the provision of medical treatment shall be found when the treatment has been authorized by the employer in a timely manner and the only dispute concerns payment of a billing submitted by a physician or medical provider as provided in Section 4603.2.
Cal. Lab. Code § 5814(g) Notwithstanding any other provision of law, no action may be brought to recover penalties that may be awarded under this section more than two years from the date the payment of compensation was due.
Ramirez v. Drive Financial Services (2008) 73 Cal. Comp. Cases 1324, 1336.
Ramirez, supra at p. 1330.
New United Motors Manufacturing Inc. v. WCAB (2006) 71 Cal. Comp. Cases 1037.
from New United Motors Manufacturing Inc. v. WCAB (2006) 71 Cal. Comp. Cases 1037.
State Compensation Insurance Fund v. WCAB (1998) 63 Cal. Comp. Cases 916.
Zurich North American v. WCAB (2013) 78 Cal. Comp. Cases 515, 522.