What Happens If I Don't Have Workers' Compensation Insurance?
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What Happens If You Don't Carry Workers' Comp?

Businesses are always looking for ways to cut down on costs and improve their bottom line. Switching to energy-efficient light bulbs and cutting back on wasted inventory is one thing, but what about not carrying Workers' Compensation Insurance?

For some business owners, it can be tempting to think of Workers' Comp Insurance as an unnecessary expense, especially if their employees never experience any serious work-related injuries. But by not having that coverage, they may be putting themselves and their businesses at risk of being charged with fraud and issued expensive fines. They may even face jail time in serious circumstances.

Penalties for Not Carrying Workers' Comp Insurance

In nearly every state, most businesses are required to have Workers' Comp Insurance if they have employees. Those without this insurance risk major penalties:

Who enforces this? In most states, local law enforcement, business regulatory bodies, and government departments dealing with insurance fraud may be involved when an issue comes up. This was the case in Florida when an undercover sting nabbed 11 unlicensed and uninsured contractors, as reported by Insurance News Net. Each contractor was charged with not carrying Workers' Compensation Insurance and could face five years in prison if found guilty.

On top of fines and criminal charges, employees can sue businesses without coverage. Normally, Workers' Compensation has an "exclusive remedy" provision that protects businesses from civil lawsuits over employee injury so long as Workers' Comp benefits cover the incident. Without the coverage, businesses may be considered open season for plaintiff lawyers.

Clearly, these penalties and risks are a serious matter, so be sure your business conforms to Workers' Compensation laws in your state. Some very small businesses may even be exempt from Workers' Comp regulations.

Not Every Business Needs Workers' Compensation

The penalties listed above apply only to businesses that are legally required to carry the coverage. However, some businesses may operate legally without Workers' Compensation Insurance. Typically, these businesses…

Family businesses where members of the household are the only workers may also safely avoid carrying Workers' Comp in some situations.

Of course, exceptions abound. For instance, some one-person businesses may still need Workers' Comp if they work in a high-risk industry. Also, Workers' Comp laws vary state by state, so a business illegally operating without coverage in one state may be legally operating in another.

The bottom line? Know your local Workers' Comp laws and stick to them to avoid a hefty punishment.

Workers' Compensation Insurance: Further Reading

Workers' Compensation in the Insureon Blog