States that mandate employers carry workers’ compensation insurance—which is every state but Texas—penalize business owners who fail to comply with regulations. These workers’ comp penalties range from daily fines to jail time, depending on the offense and state law. Some even allow injured employees to sue for compensation if their employers don’t carry coverage.
Perhaps the best thing small business owners can do is to check their states’ workers’ comp requirements before hiring any employees. That way, they can start off on the right foot with the appropriate coverage.
Once you know you need workers’ compensation, you want to find a provider that understands the importance of staying compliant. The Hartford is a good example of an industry leader that has the experience to keep their clients in line with their states’ laws. Get an online quote for workers’ compensation in minutes.
What Are the Penalties for Not Having a Workers’ Compensation Policy?
Some of the stiffest workers’ comp penalties are for not getting a policy when you’re required to, at least if you’re looking at the potential for jail time. Many states start by fining noncompliant employers but escalate charges to felonies when employers commit repeat offenses or appear willful in their refusal to buy coverage. For example:
- California: Failure to carry workers’ comp in California is a misdemeanor that may result in a minimum fine of $10,000 or one year in the county jail. Additionally, the state issues a stop order to prohibit the use of labor until you get covered.
- New Jersey: Not securing workers’ comp in New Jersey is punishable by up to 18 months in jail and a $10,000 fine. Noncompliant business owners may also be subject to severe civil penalties.
- Massachusetts: Massachusetts first issues a stop-work order and then fines noncompliant employers a minimum $100 per day, including weekends and holidays, until the insurance is purchased and the fine is paid. Employers are also subject to criminal charges that may result in up to one year in prison.
- Pennsylvania: Business owners in Pennsylvania without the required workers’ comp coverage may be charged with a misdemeanor that can mean a fine of up to $2,500 and up to one year in jail. If their actions are determined to be intentional, they can be charged with a felony and face a $15,000 fine and seven years in jail.
- Oregon: Employers in Oregon who fail to get the required workers’ compensation insurance face a penalty of twice the premium they would have paid―the minimum fine is $1,000―for the first offense. If they continue to be noncompliant, they’re charged an additional $250 per day.
Sometimes, the states that don’t send noncompliant business owners to jail charge some of the heaviest fines. New York, for example, charges businesses that have more than five employees with a class E felony. That doesn’t mean jail time, but the fine is between $5,000 and $50,000. Other states may charge lower fines, but some impose them per employee, per day and, sometimes, for both.
Can Employees Sue for Their Workplace Injuries?
Criminal fines aren’t the only money you may be out if you decide to forgo required workers’ comp. Workers’ compensation is an exclusive remedy, which means injured employees can’t sue if they accept benefits. However, most states allow workers to sue employers who fail to get coverage. Employers risk paying much higher compensation in a civil trial than they would if they’d bought workers’ comp in the first place.
When Are Employees Exempt From Workers’ Comp Requirements?
Almost every state that requires workers’ compensation insurance also has a list of workers’ comp exemptions. These are types of employees who business owners aren’t required to cover. The specifics vary widely by state, but a few common examples include:
- Agricultural workers
- Domestic employees
- Casual laborers
- Independent contractors
- Limited liability company (LLC) members
- Corporate officers
Some exemptions are automatic, like when a business hasn’t yet hired the required number of employees for the workers’ comp laws to kick in. However, some states want employers to apply for exemptions like Florida requires for LLC members with 10% ownership in the business.
What Are the Penalties for Employer Misconduct?
Along with providing an exclusive remedy, workers’ compensation is also no-fault insurance. Employees do not have to show their bosses did anything wrong to receive benefits. However, some states do apply penalties if an employer causes the workers’ injuries, including:
- New Mexico: Adds a 10% penalty if a business owner fails to provide safety devices; the law also reduces the employer’s benefits if he doesn’t use safety devices provided by his employer.
- Ohio: Workers may receive an additional 15% to 50% of the maximum legal award if their bosses’ safety violations led to their injuries.
- Massachusetts: If an employer’s serious and willful misconduct causes a worker’s injury, the work could receive double the benefits she’s owed, according to state law.
What Are the Penalties for Bad Faith Claim Denials?
All insurance companies owe the people and businesses they insure a legal duty to deal with them fairly and in good faith. In a claim, that means an insurer must conduct an impartial and reasonable investigation into the event and compensate the insured appropriately if the event is covered in the insurance contract.
The flip side of this, however, is that insurers have an incentive to deny workers’ compensation claims. As a result, they sometimes do not cover claims they should. Often, this is accidental and can be the basis for overturning a denial but, sometimes, an insurer intends on making it difficult for an injured worker to get her benefits, and that’s called an act of bad faith.
Each state has its own way of defining bad faith but, in general, the person making the complaint has to show that the insurer:
- Had no reasonable basis for denying the claim
- Knew, should have known, or recklessly disregarded the fact that it had no reasonable basis for denying the claim
A denial can be overturned without the insurers being accused of bad faith. However, if the court rules the insurer’s actions were either egregious or intentional, then it―and in some states, the employer―can face significant fines, such as:
- Minnesota: The Minnesota Department of Labor and Industry charges a $1,000 penalty if insurers have five or fewer violations in the previous two years. Insurers with six or more violations at the same time are penalized double.
- Iowa: According to the Iowa Division of Workers’ Compensation, insurers found to be acting in bad faith may have to pay injured workers an additional 50% of the benefit they were owed.
- Wisconsin: Wisconsin law 102.12 (1)(bp) provides injured workers up to three times the amount due to them or $30,000, whichever amount is less, if their employer’s carrier unreasonably denies their claim.
What Are the Penalties for Late Payments?
Insurance companies, as well as employers, can also be fined if they delay workers’ compensation payments. Most states have a strict deadline for when an insurer has to either deny a workers’ comp claim or start paying benefits. If the insurance company misses the deadline, these states often tack on penalties. Examples include:
- Nebraska: The Nebraska legislature authorizes a 50% penalty payment for delayed payments when there is no “reasonable controversy” regarding the claim.
- Alaska: The Department of Labor and Workforce Development charges a 25% penalty plus interest once a compensation payment is seven days past due.
- North Carolina: Injured employees are entitled to a 10% late penalty on compensation payments that are 14 days past due (§97-18 (g)).
These examples only show some workers’ comp penalties for insurance carriers that fail to make timely payments to injured employees. Many states also fine insurers when they are slow to pay medical providers.
What Are the Penalties for Making False Workers’ Comp Claims?
Hopefully, no one reading this article intends to file a false claim but, if you do, this information might change your mind. Most states take fraud seriously and penalize the guilty with fines and jail time, including:
- Wyoming: Fraud valued at less than $500 is a misdemeanor, punishable by a fine of up to $750 and six months in prison. If the value of the crime is more than $500, the perpetrator is charged with a felony and risks fines up to $10,000 and jail time of up to 10 years (W.S. §27-14-510).
- Texas: The Texas penal code section 35.02 establishes felony charges when a false claim results in benefits of $2,500. Perpetrators face between 180 days to two years in jail. Moreover, the state commission can levy administrative fines of up to $25,000.
- Virginia: In Virginia, workers’ comp fraud is a class 6 felony and can bring up to five years in jail.
Workers’ compensation is a complicated system that presents many ways for business owners, employees, and insurers to mess up. Understanding the ins and outs of your state’s workers’ comp laws is critical to avoiding expensive fines.
The key to that is to find an insurer who has the experience and the know-how to keep you compliant like The Hartford. In addition to writing in all states that allow private carriers, The Hartford offers a claims management approach that improves outcomes, reduces costs, and gets employees back to work.