What are the penalties for not having workers' comp insurance?

Small businesses looking for ways to cut costs and improve their bottom line may see workers’ comp coverage as an unnecessary expense, especially if their employees work in a low-risk environment.

But if your state mandates workers’ comp and you choose not to carry a policy, you could be looking at substantial penalties. Depending on the reason and length of the noncompliance, penalties can include hefty fines, criminal charges, or even jail time.

Your insurance company relies on workers’ comp class codes to determine your company’s risk level and workers’ comp rates. Whether you mean to or not, misclassifying one of your workers could lead to significant penalties.

Inadvertently misclassifying employees could mean that some employers are spending more on insurance premiums than they need to. For example, if a business owner classifies all employees under the same job code, they can’t take advantage of lower risk codes and therefore, lower rates.

While an annual policy audit will likely catch the error, business owners can save some money upfront by taking the time to double-check their employee codes before submitting them.

Some employers try to save money on workers’ comp premiums in the way they classify workers, such as by labeling full-time employees as independent contractors. Intentional misclassification is illegal and can bring steep penalties, felony charges, or imprisonment.

For example, in Missouri, knowingly misclassifying employees as independent contractors means an employer could face penalties of $50 to $1,000 per day per misclassified worker for each day of noncompliance and up to six months in jail per violation.

By ensuring that each worker is properly classified as either a contractor or an employee, and that each is listed under the appropriate workers’ comp class code, an employer can save money and avoid potential legal action.

On top of fines and jail time, employers violating workers’ comp laws can also be sued by their employees. For example, if someone suffers a work-related injury and their employer is supposed to have insurance coverage but doesn’t, the injured employee could sue to recoup the cost of their medical care.

Most workers' compensation policies contain an exclusive remedy provision that protects businesses from civil court lawsuits over employee injury as long as workers' comp benefits cover the incident. Without that coverage, business owners could easily find themselves on the receiving end of an expensive lawsuit.

Even though most sole proprietors are not required to purchase workers’ comp coverage, they may need to purchase a policy if they work in a high-risk industry, like construction.

Also, since labor laws vary by state, a business that has employees in different locations must comply with the laws in each state. For example, if a Texas-based company has an employee working in New York, the business owner would need to purchase coverage for that remote employee to avoid legal repercussions.

Having workers’ comp insurance protects you, your employees, and your business. Our licensed insurance agents are here to help you understand the laws in your state and provide additional information about finding workers’ comp coverage for your company.

By completing our easy online application, you can get free insurance quotes and find affordable coverage today. Most business owners get approved right away, with same-day access to their workers' compensation insurance certificate.