A contractor receives a project payment of $45,000 on January 15th. The contractor has 4 employees working on the project. If the contractor fails to carry workers' compensation insurance, what is the potential penalty per employee per day?
Correct Answer
C) $1,000 per employee per day
Labor Code Section 3722 imposes penalties up to $1,000 per employee per day for failure to carry required workers' compensation insurance.
Why This Is the Correct Answer
Labor Code Section 3722 establishes strict penalties for contractors who fail to maintain required workers' compensation insurance. The penalty is up to $1,000 per employee per day of non-compliance. With 4 employees, this exposure could reach $4,000 per day — a significant financial deterrent designed to ensure all employees are covered. The $45,000 payment and January 15th details are irrelevant distractors.
Why the Other Options Are Wrong
Option A: $2,000 per employee per day
$2,000 per employee per day overstates the per-employee daily penalty under Labor Code Section 3722. While the total exposure across all employees could approach this per-employee figure, the statute specifies $1,000 per employee per day as the unit penalty.
Option B: $100 per employee per day
$100 per employee per day significantly understates the penalty. A $100-per-day fine would provide insufficient deterrent for a contractor to maintain insurance on a $45,000 job. The legislature set the penalty high ($1,000/employee/day) to make non-compliance economically irrational.
Option D: $500 per employee per day
$500 per employee per day is half the correct amount. This figure might seem reasonable but is not what Labor Code Section 3722 specifies. The actual penalty is $1,000 — double this amount.
Memory Technique
Remember: '$1,000 per person per day — workers' comp is not optional.' A helpful visualization: if you have 10 employees uninsured for 5 days, that's $50,000 in potential penalties — more than the project payment. The math makes non-compliance economically devastating, which is the point.
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