In California’s Self-Determination Program (SDP), participants have the flexibility to choose from different Financial Management Services (FMS) models to manage their individual budgets. These models differ in terms of employer responsibilities, financial oversight, and the level of control participants have over their services. Understanding these models is crucial, particularly when it comes to handling payments, liability and health insurance coverage for staff and services.
The three primary FMS models available under California's SDP are:
Bill Payer Model
Co-Employer Model
Sole Employer Model
Bill Payer Model
This model is the simplest of the three. If you are not planning to hire employees, this is the ideal choice. In the Bill Payer model:
You do not hire employees directly.
You can select vendors or services that aren’t listed by your local regional center.
The FMS handles payments for goods and services, but no employee management is involved.
This is perfect for participants who only need services without having to manage staff.
Co-Employer Model
In the Co-Employer model, both you (the participant) and the FMS play roles in managing employees. Here's how it works:
The FMS is the official employer of record.
The FMS takes care of payroll, tax filings, and other employer responsibilities.
You, as the participant, retain the power to hire and fire employees and decide who will work with you.
Although the FMS is technically the employer, you are in charge of selecting and managing the staff who support you. This shared responsibility makes things easier, as the FMS handles administrative duties, including background checks, workers’ compensation, and liability insurance.
Sole Employer Model
In the Sole Employer model, you (or someone you designate) become the employer of record. This model offers the most control and flexibility, but it also comes with additional responsibilities. Here’s what you need to know:
You handle most aspects of being an employer, including deciding whether to conduct background checks if your employee isn’t providing personal care services.
As an employer of record, you need to get a Federal EIN number by registering your business. The recommendation here is to do it as an LLC and not as a Sole proprietor. However most FMS offer only sole-proprietor due to IRS restrictions. This opens you to lot of personal risk which we will cover it in Liability Insurance section below.
As an employer, you are also responsible for all you year end accounting and tax filings.
Your FMS might help in some areas, but it falls under your responsibility.
If you hire family members or close friends, you may skip background checks, but for new hires or those you aren’t familiar with, it’s wise to conduct them. As the sole employer, the participant is responsible for all aspects of compliance, including workers’ compensation, liability insurance, and employee management. The FMS only acts as a payroll agent.
What is Employer Burden?
Employer burden refers to the various responsibilities and costs that participants assume when they become employers of their service providers or care workers. For instance, employer burden covers expenses like payroll taxes (e.g., Social Security and Medicare), unemployment insurance, and contributions to workers' compensation insurance.
Typically FMS companies charge anywhere between 18-25% for employer burden. These costs are deducted from the participant’s overall budget, which could otherwise be used for direct services or other vital resources. For example, in a budget with $100,000 payroll, this means spending $25k on just employer taxes. So, remember to ask your FMS on the employer burden and make an informed decision. Here is the list of all FMS's employer burden rates.
Workers' Compensation and Liability Insurance
Both workers' compensation and liability insurance are essential in protecting both employers and employees from workplace injuries and accidents. They cover different aspects of potential risks and are required when hiring employees in the co-employer or sole employer models.
Workers' Compensation Insurance
Workers’ compensation covers employees if they get injured or become ill due to their work. It provides wage replacement and medical benefits to employees, ensuring that the employer is protected from lawsuits stemming from workplace injuries.
Co-Employer Model:Â The FMS is responsible for providing workers' compensation since they are the official employer of record.
Sole Employer Model: The participant must ensure that workers’ compensation is provided either through the FMS (if they offer it) or by purchasing a policy independently.
Liability Insurance
Liability insurance is critical because it protects both participants and FMS providers from potential legal and financial risks, such as employee injuries, property damage, or service-related incidents.
There are three main types of liability insurance to consider:
Employer Liability Insurance (within Workers’ Compensation)
General Liability Insurance
Professional Liability Insurance
Employer Liability Insurance (within Workers’ Compensation)
Employer Liability Insurance is often bundled within Workers’ Compensation (WC) policies. It protects the employer from claims made by employees for workplace-related injuries or illnesses. While Workers’ Compensation covers medical expenses and lost wages, Employer Liability Insurance covers legal fees and settlements if an employee sues the employer for negligence.
In Co-employer Model, FMS is the employer of record and takes care of Workers Compensation insurance and employer liability insurance which is usually a part of WC. In Sole Employer model, the participant is responsible for both WC and the Employers liability insurance. However few FMS, offer WC as part of their employer burden.
General Liability Insurance
General Liability Insurance covers non-employee-related risks, such as third-party bodily injury or property damage. For example, if a service provider damages a participant’s property or a visitor gets injured on the premises, this insurance covers the legal and financial liabilities.
In Co-employer Model, FMS is the employer of record and takes care of General liability to protect them. It is usually not a concern for participants in Co-Employer Model. In the Sole Employer model, the participant is advised to secure general liability insurance, which can be included in the Spending plan. However this can get really expensive, especially for participants who are not familiar with navigating insurance landscape. We also do recommend participants to register their business as an LLC (or Corp) instead of Sole proprietor to protect their personal assets if anyone were to sue the business.
Professional Liability Insurance
Professional Liability Insurance, also known as Errors & Omissions (E&O) insurance, protects against claims of negligence or inadequate performance by service providers. It’s particularly important for those delivering specialized services, such as therapy or consulting. This also protects when employers get sued for sexual and racial discrimination as well. This is sometimes know as Employment Practices Liability Insurance (EPLI).
For Sole Employer participants, professional liability insurance is essential when hiring specialized staff, such as therapists or consultants. Without this coverage, participants could be financially liable for professional negligence claims. Again, In Co-employer Model, FMS is the employer of record and takes care of Professional liability to protect them.
Please note, typically when you choose a Sole Employer Model, few FMS offer Workers Comp insurance and employer liability. However they do not offer General and Professional liability insurance. Please pay attention and make the right decision if you want to go Sole Employer route.
Health Insurance in FMS Models
The provision of health insurance is another important consideration for participants hiring employees through the Self-Determination Program. Health insurance laws and regulations in California play a critical role in determining whether a participant must provide coverage to their employees.
Co-Employer Health Insurance
In the Co-Employer model, the FMS serves as the employer of record and provides health insurance options for employees. These benefits are typically tied to the FMS's employment policies, meaning that once employees meet certain eligibility criteria (such as working a specific number of hours), they can receive health insurance through the FMS.
Participant Responsibility:Â While the FMS provides the health insurance, participants must cover the cost of the employer's share of the premiums through their spending plan. This means that participants need to carefully budget for health insurance costs if they hire employees who qualify for these benefits.
Sole Employer Health Insurance
In the Sole Employer model, participants have more flexibility regarding health insurance but also bear greater responsibility. Under California law, employers with fewer than 50 employees are not legally required to provide health insurance. Most participants in the Self-Determination Program will fall into this category and therefore are not obligated to offer health insurance.
Flexibility:Â Participants in the sole employer model can choose whether or not to offer health insurance to their employees. This can be done through a reimbursement model where employees purchase their own insurance, and the participant reimburses them for some or all of the premium.
Benefits for Employees:Â Offering health insurance, even when not legally required, can be a valuable way to attract and retain quality employees. In a competitive labor market, the ability to offer flexible health insurance options can set a participant apart as a desirable employer.
Conclusion
Each FMS model under California’s Self-Determination Program offers varying levels of control, responsibility, and risk for participants. Understanding how employer burden impacts their budget and various type of insurances fits into these models is crucial to a successful SDP journey. For participants, especially in the Sole Employer model, the burden of securing these insurances can be high, while the Co-Employer model offers more shared responsibilities with the FMS provider. Regardless of the model, understanding the importance of these coverages can mitigate risks and ensure smoother management of services under SDP.
Accura FMS provides a cutting-edge platform designed to meet all your Self-Determination Program (SDP) needs. We offer all three FMS models with competitive employer burden rates. Book a free consultation with our experts to help you choose the right FMS model based on your unique spending plan. No matter where you are in your SDP journey, we're here to support you every step of the way.
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