Workers' Compensation Noncompliance: Employer Consequences

In most states, employers must carry workers' compensation insurance. They may have the option of using a private workers' compensation insurance carrier or buying through the state.

In some states, larger employers can self-insure or act as their own insurance companies. Smaller companies may not need workers' compensation insurance at all.

If an employee suffers a workplace injury, they file a workers' comp claim. The carrier pays for medical care without any determination of fault.

Employers who fail to provide workers' compensation insurance may face fines, criminal prosecution, and civil liability. In some states, the labor board has the authority to close a business until the employer complies with their workers' comp insurance requirements.

Workers' Compensation Laws

All states except Texas require employers to carry a workers' compensation insurance policy for their employees. The number of employees necessary for workers' comp coverage varies from state to state. In California, even one employee is enough.

Some types of workers are exempt from workers' comp insurance. For example, agricultural and railroad workers use other types of workplace insurance.

Small-business owners have the same duties as larger employers, except for some recordkeeping requirements. Penalties for failure to provide workers' compensation benefits depend on state laws.

Legal Penalties and Fines

State laws contain a wide range of possible legal penalties for employers who do not provide the proper workers' compensation insurance for their workers. Fines can mount quickly, so employers should not hope their workers never suffer work-related injuries.

Employers may face fines from $100 to $5,000 per employee per day for failure to provide workers' comp insurance. States may issue fines whether an employee has incurred any medical expenses or not. Courts may order employers to pay an injured worker's medical bills out of pocket.

Several states have the authority to close businesses that are out of compliance with the workers' compensation system. This action is known as a stop-work order. A business can be shut down over things like:

• Not carrying insurance
• Failing to file a report of injuries
• Not deducting workers' comp premiums from paychecks

Without the protection of workers' compensation, business owners could also face employee personal injury lawsuits or even criminal charges. Criminal penalties in some states can range from misdemeanors to felonies. In Illinois, willful failure to provide workers' comp coverage is a felony with a sentence of up to three years in prison.

Increased Insurance Costs

Workers' compensation insurance coverage is based in part on your annual payroll and the number of previous claims. As with any other insurance, if you had a claim before you had insurance, it will be more difficult to get reasonable insurance rates after state fines or penalties.

Some states, such as Pennsylvania, will pay health and disability benefits if the employer has no insurance. The employer must pay back all costs before the state issues a workers' comp policy.

Workers' comp costs are generally less expensive than illegally remaining uninsured and hoping no one gets injured or ill on the job.

Workers' Compensation FAQ for Employers

Employers should discuss workers' compensation rates with their insurance agent. In a few states, business owners must purchase workers' comp through state workers' compensation funds. In others, employers can choose between state and private insurance.

Can I self-insure my employees?

In some states, companies with sufficient net worth and annual income may provide their own workers' comp benefits. A recent trend for insurance pooling has allowed smaller companies to pool workers' comp in the same way they pool health insurance.

Does workers' compensation apply to all employees?

In most states, workers' compensation insurance applies to all workers under an employer's direct hire. Full-time and part-time workers are covered. Independent contractors are not. Workers' comp may cover remote workers for injuries received at home during regular work hours.

Do penalties apply to family members?

Yes. Death benefits are part of workers' comp insurance. Failure to pay death benefits and other benefits to family members can result in the same penalties as failure to pay medical benefits.

Important Next Steps: Get Legal Advice

Each state's workers' comp laws are different. Injured employees must receive coverage according to your state's laws. If you're unsure what your state requires, consult a business and commercial law attorney in your area. A skilled lawyer will be able to advise your company on its rights.