In 2016 workers compensation costs totaled $96.5 billion for employers. It can be tempting to improve your bottom line by skipping out on insurance.
This can result in unwanted consequences. So, what happens if you don’t have insurance to cover one of these claims against your business?
You risk facing fines and lawsuits if you do not have workers’ compensation coverage. Keep reading for an explanation of the consequences of not having insurance for your employees.
Who Must Have Coverage
Many states specifically require certain businesses to protect their employees with workers compensation. We are going to use Florida as an example since they have very specific requirements by industry. But we recommend a consultation for the requirements for your specific state.
If you are an employer operating with employees in the state of Florida, then you must have workers’ compensation insurance. The coverage you must have will vary depending on what industry you are in.
If your business operates in the construction industry, you must have insurance if you have one or more employees. Employee count includes the owner and any corporate officers or board members.
If your business is in the agricultural industry, you must have insurance if you have 6 or more regular employees or at least 12 seasonal employees. A seasonal employee works at least 30 days, but no more than 45 days in a calendar year.
While each state has specific requirements for agricultural businesses, Maine has some of the more lax requirements. Those with seasonal workers are exempt. They just need to have $25,000 in liability insurance and $5,000 in medical payment coverage.
If your business is not in the construction industry, then you must have insurance if you have four or more employees. This includes any owners, corporate officers, or board members.
There is one exception that applies to a sole proprietorship. A sole proprietor is not an employee unless they elect to be counted as one.
Out of State Employers
If your business is located out of state, but you have employees working in Florida, you must immediately notify your current insurance provider. If your business doesn’t currently have insurance, then you must obtain a policy for your Florida employees.
Nevada has a specific clause for out of state employers who are only operating in the state temporarily. If the time limit is less than 20 days and labor is less than $500, they don’t need insurance if they have it in their home state.
This area of the requirements can get tricky for business owners. As the contractor, you are not responsible for obtaining insurance for subcontractors, but you are responsible for ensuring that your subcontractors obtain it.
If you work in the construction industry, you cannot get out of having insurance by claiming your workers are independent contractors. You may also find that your contracting business must cover a subcontractor’s employee under your insurance if your subcontractor doesn’t have insurance.
Sometimes You Don’t Need Workers Compensation
Some states have no requirement for businesses to carry workers compensation insurance. Texas is one of these states.
But there are also some states that specifically except some businesses. Such as in Wisconsin and Rhode Island where employers that have fewer than three employees are exempt.
In New York, if you are a sole proprietor with no employees, you don’t have to purchase insurance for yourself.
What Happens If You Don’t Have Insurance
When you don’t have workers’ compensation insurance, you open up your business to liability. One main reason business owners don’t get insurance is to save money.
Unfortunately, you will end up spending significantly more when you are caught without it.
If you cannot show proof that you have insurance, you will be subject to civil action. You will have to pay a fine that equals twice the amount you would have paid in the previous two years. There is also a 90-day time limit to pay this fine.
If you attempt to defraud the bureau, you could have a Stop Work Order or SWO issued against your business. This will happen if you have tried to conceal or understate your payroll so you can reduce your insurance premium.
Or if you concealed or misrepresented your employee’s duties. Or if you actively did anything to fraudulently reduce your workers’ compensation premiums.
The Division of Insurance Fraud may file criminal charges against you if you take any action that is against the law. Florida statute 440.105 outlines the prohibited activities and penalties applied.
As outlined by the statute, it is illegal to do these things:
· You continue to operate your business when a Stop Work Order has been issued for your business.
· Make false statements for the purpose of obtaining coverage.
· You operate your business without insurance when you are legally required to have insurance.
· You fail to report an employee’s injury to your insurance carrier.
· You deduct your workers’ compensation premium cost from your employee’s paychecks.
· You threaten to, or actually fire employees after they file or attempt to file a workers’ compensation claim.
· You change your employee’s classification from employee to independent contractor fraudulently.
If your employee suspects that you don’t have proper coverage, they can report you to the Division of Fraud at the Bureau of Workers’ Compensation. There is a toll-free hotline that accepts anonymous complaints.
Injured Employee Lawsuit
Normally when an employee gets injured while on the job, workers’ compensation covers the medical costs. But if you don’t have this insurance, your business is now liable for the cost.
Your employee has every right to file a lawsuit against your business for all medical costs. If you had the insurance, your employee would have been barred from this remedy thanks to an exclusive remedy clause.
In Texas where businesses are not required to have insurance, they are required to pay for their employee’s medical costs. So, expect to either pay or be on the receiving end of a lawsuit. The employee can also report you for nonpayment.
It isn’t enough to have the insurance and then not use it. As the business owner, you have a certain amount of time to file any employee injuries with your insurer.
Businesses that have employees in Florida can face hundreds of dollars in penalties for not filing or filing late. You could also have to pay interest on your penalties
· 1-7 days late: $100
· 8-14 days late: $200
· 15-21 days late: $300
· 22-28 days late: $400
· Over 28 days late: $500
As you can see, you need to act immediately when your employee suffers an injury. Be sure you know the laws for your state for refusing to file a claim for your employee.
How to Get Coverage
You have a few options when it comes to obtaining insurance. You may be able to get approval to self-insure.
The majority businesses though purchase their insurance from a commercial provider. Working with a broker can help you negotiate rates and select the right solution for your business.
Through the State
Some states such as Utah, Rhode Island, and Texas allow you to choose to purchase your insurance through a state program. You have the option of buying your insurance from a private provider or the state.
Then there are some states that do not allow businesses to purchase private workers compensation. For example, North Dakota, Wyoming, and Washington only allow businesses to purchase their insurance through a state-administered fund. Private and self-insurance are not accepted.
Make Sure Your Business Has Coverage
Hopefully, you know understand what happens if you don’t have insurance. You put your entire business in jeopardy.
The cost savings you think you are enjoying now will be far outweighed by the increased costs you will have later. This could be from fines imposed as punishment. Or it could be from defending yourself in a lawsuit from an injured employee.