1. Workers’ Compensation Laws – and Fines – Are Determined by States
Because Workers' Compensation laws are handled at the state level, there is no such thing as federal Workers' Compensation laws. There is a special compensation program for federal employees, but that's not something that affects small businesses.
Every state whose law requires Workman's Comp has its own rules and punishments for those who don't comply. In most places, you'll be charged a fine for not having coverage, but how much you pay depends on:
- The number of employees you have. Sometimes the smaller the business, the smaller the fine. For example, in New York, a noncompliant business with fewer than five employees may face fines of $1,000 to $5,000. For more than five employees, fines can reach $50,000.
- The reason you don't have coverage. Penalties can go up if a court decides you intentionally lied about the number of employees you have or the jobs they perform. In Pennsylvania [PDF], intentional noncompliance is a felony.
- The number of days you don't have coverage. In Illinois, a business owner who “knowingly and willfully fails to obtain insurance” faces up to a $500 per day in fines.
The takeaway: Not having coverage can cost you thousands of dollars in penalties, depending on the Workers' Compensation laws in your state.
2. Breaking Workers’ Comp Laws Can Mean Criminal Charges in Some States
Workman's Comp laws exist so your employees can recover if they're hurt on the job. Not having enough coverage is bad news in the event of an injury, but it can also lead to criminal charges in some states.
And in some states, you can even face jail time for not following Workers' Comp laws. These states include:
This isn't a definitive list, so be sure to read up about penalties where you live.
3. Workers' Compensation Laws Influence the Cost of Coverage
As you'd expect, the type of work you do affects your Workman's Comp premiums: businesses in high-risk industries like construction pay more than those based in offices. But laws in your state also impact the cost of coverage.
Each state has its own Workers’ Compensation system, and that includes determining the premium. For example, the National Academy of Social Insurance reports [PDF] that Alaska has the highest employer cost at $2.58 per $100 of covered payroll. The lowest is in Massachusetts, at just $0.74 per $100 of covered payroll.
You can learn more about Workers' Compensation costs in “How Much Is Workers’ Comp Insurance?”