Last week, WorkersCompensation.com reported that a Bronx-based home healthcare business was arrested and arraigned for failure to pay its workers and violations associated with New York State’s Workers’ Compensation laws. The defendants, business owners Maria Etim and Charles Mayers and manager Wayne Patterson, could end up spending four years in prison.
This is a particularly egregious example of what happens when small-business owners fail to comply with local Workers’ Compensation laws. For nearly four years, these three hired personal home care aides to care for severely disabled patients and refused to pay them. Additionally, the business owners did not carry Workers’ Compensation Insurance, file quarterly tax returns, or pay required unemployment insurance taxes for their employees.
But your business does not have to act with such recklessness in order to find itself in violation of local Workers’ Compensation Laws – even businesses honestly trying to comply could have room for improvement.
What Small-Business Owners Need to Know about Local Workers’ Compensation Regulations
You likely already know that most states require business owners to carry Workers’ Compensation Insurance, a type of coverage that helps you compensate employees when they get sick or hurt at work.
But are you completely familiar with your state’s rules and regulations? If not, be sure to check out our state-by-state breakdown of Workers’ Compensation Insurance laws. In the meantime, consider the following questions:
- Are you a sole proprietor? In the eyes of the law, a sole proprietor is anyone who works without employees – whether you’re a freelance graphic designer or an independent contractor in the construction industry. In many states, 1099 contractors must be included in an employer’s (client’s) policy, but in some states they are exempt from coverage. In most states, sole proprietors can opt out of carrying Workers’ Compensation Insurance for themselves, but there are a number of exceptions. For example, professional roofers in California are required to carry Workers’ Comp coverage, even if they have no employees. In other states, the addition of a single employee (like a subcontractor) will require you to carry coverage.
- Do you hire employees? Many states’ Workers’ Compensation laws depend on the number of employees a business has. As we mentioned, a single employee can sometimes mean you’re on the hook for carrying coverage. Generally speaking, full- and part-time workers are considered “employees” when taking head counts.
- Do you hire 1099 contractors? Sometimes small-business owners think that if they only hire 1099 (independent) contractors, then they aren’t required to carry Workers’ Compensation Insurance. This isn’t always true. For example, in the state of Arkansas, business owners are required to carry coverage if they have three or more workers of any status: W2, 1099, or part-time. In some states and professions, the misclassification of employees – intentional or otherwise – is a huge problem. Read our blog post “Senate Bill Takes Aim at Workers’ Comp Misclassification” for more information.
- Do you hire family members? In some states, family members can be excluded from a business owner’s Workers’ Compensation Insurance plan – but not always. And while it’s easy to forget that close family members (a spouse, a brother, a daughter) are technically employees, there are several instances where state law treats them as such when it comes is WC coverage. Consult your state’s laws to be sure one way or the other.
- Does your state make WC coverage optional? A few states, like Texas, give employers the option of carrying coverage (with some exceptions). This does not mean that employees cannot sue their employers if they feel they have a genuine Workers’ Compensation case and their employer refuses to pay – they can. A lack of a Workers’ Comp mandate simply means that your business could end up paying all the legal hassle – and potentially the medical bills and lost pay of an injured employee – if it legally foregoes coverage.
The point is, it can be relatively easy for small-business owners to unintentionally find themselves on the wrong side of state Workers’ Compensation laws. Most of that has to do with the fact that the rules, regulations, and exemptions are so varied – the questions above only serve to scratch the service of Workers’ Comp requirements in the United States.
If you liked this post, you may be interested in learning about ways to manage your WC costs. Check out our Workers' Comp Insurance Quote Analysis for more info.