Double Trouble: Understanding Penalties and Interest on Unpaid Temporary Disability Benefits

Introduction

When temporary disability (TD) benefits are delayed or unpaid in California workers' compensation cases, injured workers may be entitled to both penalties and interest. This "double trouble" for employers can significantly increase the cost of claims, while providing important financial relief for injured workers facing delayed benefits. Let's explore how these penalties and interest work, and when they apply.

 

The Automatic 10% Penalty: No Excuses Needed

Under LC § 4650(d) , if temporary disability payments aren't made on time, the amount of the late payment is automatically increased by 10%. This penalty:

  • Applies without application or request from the employee

  • Is self-imposed, meaning employers should add it to late payments without being ordered to do so

  • Is based on strict liability, regardless of the reason for delay

This means if you're an injured worker and your TD payment is late, you're entitled to an additional 10% without having to ask for it or prove the delay was unreasonable.

 

When the 10% Penalty Doesn't Apply

There are several exceptions to the automatic 10% penalty:

  1. When the employer continues the employee's wages under a salary continuation plan

  2. When the employee hasn't filed a claim form

  3. When the employer can't determine within the 14-day period whether TD is owed and properly advises the employee of the reasons

  4. When liability for the injury or disability is disputed

If the injury, disability, or indemnity rate is disputed, the employer has 14 days after the final determination to pay without incurring the penalty.

 

Interest: The Other Financial Consequence

In addition to the 10% penalty, interest also accrues on unpaid TD benefits. This interest:

  • Begins to accrue from the date the payment becomes due

  • Is separate from and can be applied alongside the 10% penalty

  • Compensates the injured worker for the lost time value of money

While the 10% penalty is punitive in nature (designed to encourage prompt payment), interest serves a compensatory function.

 

Additional Penalties for Unreasonable Delays

Beyond the automatic 10% penalty, employers may face additional penalties under LC § 5814 if the delay is found to be "unreasonable." These penalties:

  • Can be up to 25% of the delayed payment

  • Require a finding that the delay was unreasonable

  • Are discretionary rather than automatic

Interestingly, an employer's voluntary payment of the 10% penalty might create "genuine doubt" that protects them from additional LC § 5814 penalties in some cases.

 

Special Circumstances: EDD Benefits and Two-Year-Old Claims

State Disability Benefits (EDD)

When an employee receives state disability benefits during a period when the employer later accepts liability for TD, the employer must reimburse the EDD within 60 days. Failure to do so may result in:

  • Interest on the amount

  • A 10% penalty if the failure to pay was unreasonable

Adjustments for Two-Year-Old Claims

If TD payment is issued more than two years from the date of injury, the weekly TD rate might be subject to an increase. Failure to make these adjustments can also trigger penalties.

 

Practical Implications

For Injured Workers:

  • Review your TD payments carefully to ensure they're made on time

  • If payments are late, check whether the 10% penalty was included

  • Understand that you may be entitled to both penalties and interest on the same unpaid benefits

  • Consider consulting with an attorney if you believe penalties and interest are owed but not being paid

For Employers and Claims Administrators:

  • Implement systems to ensure timely payment of TD benefits

  • When payments will be late, voluntarily include the 10% penalty

  • Document reasons for delays, especially when liability is genuinely in dispute

  • Consider the potential cost of penalties and interest when making claims decisions

Conclusion

 

The dual application of penalties and interest on unpaid temporary disability benefits creates a powerful incentive for employers and claims administrators to pay benefits promptly. For injured workers, understanding these provisions can help ensure you receive all the benefits you're entitled to under California law.

 

Remember, the 10% penalty under LC § 4650(d) and interest are separate and distinct, and both can apply to the same unpaid TD benefits. This "double trouble" approach reflects California's strong public policy favoring the prompt payment of workers' compensation benefits to injured workers.