Aside from bringing value to the market and increasing profits, every business is also ultimately seeking to reduce costs. This includes avoiding fines and other penalties, as well as legal issues. A company should strive to protect its employees before anyone else and one highly effective way of doing this is to obtain workers’ compensation insurance.
According to the Social Security Administration’s Office of Retirement and Disability Policy, state and federal workers’ compensation laws in 2015 covered approximately 135.6 million employees. Wages paid to all of these covered employees in 2015 totaled $7.2 trillion. Let’s examine the benefits of this type of insurance and the potential consequences of failing to acquire it.
Do I Need A Workers’ Compensation Insurance Policy?
In most states, companies are required to obtain workers’ compensation insurance after they have hired a specified number of employees.
This number varies by state, although the mandatory workers’ compensation insurance rule applies as soon as that threshold is crossed. Always be sure to remain informed about the laws in your state concerning this matter.
Businesses Which Are Exempt
Certain companies are not legally obligated to acquire workers’ compensation insurance in order to continue their business operations. These businesses are generally:
- Sole proprietorships
- Located in Texas, where workers’ compensation insurance is typically voluntary for many employers
- Exclusively employ members of the business owner’s immediate family (in certain states)
- Businesses that have not hired the minimum number of workers before this type of insurance became mandatory
Exceptions to these rules sometimes exist, so it’s important to be aware of and understand exactly what the laws in your state dictate. In Texas, for example, optional workers’ compensation insurance extends to part-time employees.
Negative Outcomes Of Not Acquiring A Workers’ Comp Policy
There are two notable consequences of failing to acquire a workers’ compensation insurance policy: fines (and other criminal penalties) and employee lawsuits. Here is a close analysis of each of these two types of penalties.
Fines & Criminal Penalties
The fines and other criminal penalties handed down for failure to comply with workers’ compensation insurance laws vary by state. In Illinois, a business that lacks workers’ compensation coverage will merely draw a misdemeanor charge (although wilfully failing to acquire this form of protection is a felony).
In New Jersey, failure to obtain a workers’ comp insurance policy is a criminal offense that carries either a fine of $10,000 or a prison sentence of up to 18 months. In Pennsylvania, intentionally failing to comply with workers’ comp coverage laws is a third-degree felony that can carry a fine of $15,000 and a maximum of seven years in jail.
Laws that mandate workers’ comp insurance are generally enforced by business regulatory groups and government agencies that specialize in insurance fraud.
If you don’t have workers’ compensation insurance and one of your employees becomes injured on the job, they may file a lawsuit against you in order to recoup the total cost of all medical expenses related to this injury. Workers’ comp insurance typically includes an “exclusive remedy” provision that is intended to shield companies from civil lawsuits related to employee injuries, with the sole stipulation that workers’ compensation benefits cover the incident in question.
If you fail to take adequate precautions in this respect, you may be exposing yourself to the possibility of long-lasting litigation. It is especially important for you to acquire a workers’ compensation insurance policy and to ensure your workplace conditions are safe if you own a business in a high-risk industry such as construction, mining, manufacturing, or health services. The total amount an employee demands in a lawsuit often depends on several factors, including how and why the injury occurred and the severity of this injury.
Reach Out To A Professional Business Insurance Agency
Speak to the business insurance agents at Southern State Insurance in Alpharetta, Georgia for more information on the benefits of workers’ compensation insurance and laws about complying with this form of protection. Since our founding in 1992, we have grown to become one of the largest, privately-held independent insurance agencies in the Southeastern United States. We work with nearly every major insurance carrier and are dedicated to helping our clients obtain the best possible value.