When a small business owner decides to forgo worker’s compensation insurance coverage, they pay the price. Worker’s Comp pays benefits to employees when they suffer occupational injuries and diseases. This coverage is deemed so crucial to workplace safety that most states require employers to carry it.
So what happens when employers break workers’ compensation laws? Not only are they fined, but they are also still responsible for the costs of workplace injuries and illnesses. Plus, they might have to foot the litigation expenses if they are sued for the accident.
Let’s take a look at the high price of not carrying Workers’ Compensation coverage in more detail.
Worker’s compensation insurance fines in New York
Every state (except for Texas) requires that employers carry Worker’s Compensation Insurance for their employees. Because each state’s laws are different, the fines for violating these laws vary, too. (Learn more here: Workers’ compensation insurance laws by state.)
To give you an idea of the nature and cost of these fines, we’ll look specifically at one state: New York. Here is a selection of Workers’ Comp noncompliance fines, as outlined in the state’s employer’s handbook:
- Not carrying coverage. This is considered a criminal offense in New York. If you have five or fewer employees and fail to secure coverage within a 12-month period, your fine will fall between $1,000 and $5,000. If you employ more than five employees, your fine will be between $5,000 and $50,000. It’s also a felony, so you could be on the hook for “other penalties otherwise provided by the law.”
- Getting busted again. If you’ve already been caught once without Workers’ Compensation Insurance and you are cited again for noncompliance, you’re looking at a class D felony with a fine between $10,000 and $50,000.
- Misrepresentation. This offense deals with inaccurate recordkeeping, such as misrepresenting how many people you employ, their wages, their classifications, and their workplace injuries and illnesses. Basically, any inaccuracies that could affect your Workers’ Compensation premiums are considered “misrepresentation.” For a civil offense, the fine is $2,000 for every 10 days of noncompliance or two times the cost of compensation. For a criminal offense, the fine falls between $1,000 and $50,000.
- Not maintaining an accurate payroll. If you don’t keep accurate records of your employees, their classifications, their wages, and their accidents as outlined by the law, you are subject to a fine between $5,000 and $10,000. This also goes for employers who do not provide records when asked by authorities. If you’ve already been busted once for this and get caught again in the next 10 years, you’ll be slapped with a class E felony and a fine between $10,000 and $25,000.
Additionally, New York employers who fail to secure coverage are responsible for all legal expenses for defending themselves against workers’ comp claims. (This cost is usually covered by workers’ comp policies.) These employers are also responsible for paying all medical and wage benefits that are awarded to injured employees. There is no cap to these charges. Read on to learn more about the average cost of these expenses.
The high cost of medical and legal bills for small business owners without workers’ comp
Employers are, in general, responsible for paying for their employees’ workplace injuries and illnesses – even if they live in Texas (the only state that doesn’t legally require coverage). So even if you don’t carry workers’ comp, a judge will probably still find you liable for your employees’ medical and wage replacement expenses. You’ll also have to pay your legal defense costs.
To paint a picture of these staggering expenses, take a look at the following numbers:
- $2,000 to $3,000: Average cost of legal fees (not including defense costs) for a misdemeanor trial (nolo.com).
- $50,000 to $100,000: Average cost of civil case litigation (without appeals or the cost of judgment) for small businesses (sba.gov).
- $87,435: Average cost of a lost-time claim in New York in 2009 (Oliver Wyman).
- $1,037: Average cost of a medical-only claim in New York in 2009 (Oliver Wyman).
- $27,933: Average total claim cost in New York in 2008 (Oliver Wyman).
As a final example, let’s imagine that you run a business in New York. An employee files a workers’ compensation claim for an occupational accident only to find out you don’t have coverage.
You have seven employees, which totals $15,000 in fines for not carrying coverage. Your employee sues for medical expenses and lost time. All told, your trial costs $60,000 and the judge awards the injured employee $28,000 for medical and lost-wage benefits. Your total cost? $103,000.
Want to learn more about workers’ compensation insurance and what affects your rates? Check out our workers' comp insurance cost analysis.