Operating a business comes with many expenses. From small local operations to sprawling multinational corporations, business owners often seek ways of cutting operating costs. Companies typically focus on improving efficiencies and cutting waste to save money. For some companies, particularly in areas where it is not required, workers’ compensation insurance may be seen as an unnecessary and frivolous expense. The harsh reality is that for any company, the risk of a serious injury occurring in the workplace can lead to devastating financial consequences.
The State of Workers’ Compensation Insurance
All U.S. states require that businesses carry some form of workers’ compensation insurance, with the exception of Texas, where most businesses may voluntarily carry this insurance. Coverage and rules vary by state; in several states, like Georgia, the insurance is required based on a set number of employees. Other states may require the insurance based on the type of business and its workforce. It is critical that business owners understand the specific laws governing the availability of and the coverage requirements for the state in which they operate their business.
Penalties for Not Carrying Workers’ Compensation
As with the laws governing workers’ compensation insurance and its specific requirements, each state has its own laws regarding penalties for businesses that forgo or drop this valuable employee insurance coverage. In some states, failure to carry worker’s compensation insurance can result in felony criminal prosecution and jail time. States where jail time is a possibility include:
- Illinois
- California
- Pennsylvania
- Massachusetts
- Michigan
Typically, failure to carry workers’ comp can result in significant fines ranging from $1000 to $10,000 or more. New Jersey imposes steep penalties; failure to provide this insurance coverage can result in high fines or jail terms of up to 18 months for violators.
Fines and jail terms notwithstanding, workers injured on the job may file claims against their employers, either individually or in class-action lawsuits. Fighting a lawsuit can cost thousands or even millions of dollars in legal fees and settlement payments. This can severely and negatively impact a company’s ability to continue operation, and smaller companies may be devastated by these costs.
Avoiding Risks by Carrying Workers’ Compensation Insurance
Workers’ compensation insurance can be expensive. In several economic studies, insurance premiums represented almost 2% of operating expenses for companies. As premium costs rise, so too does the potential for employers to drop this insurance, regardless of applicable laws. It’s important for you, as the insurer, to illustrate to your client that this is not the answer.
Workers’ compensation insurance is designed to protect against employee workplace risks by covering costs associated with workplace injuries, including medical expenses, lost wages, and legal fees. Some companies believe that paying these expenses out of pocket may be a more cost-effective solution, especially in companies where the workplace injury risk is low. Still, most insurance professionals and regulatory agencies know that paying regular premiums for workers’ compensation insurance is much more likely to be cheaper than an unexpected out of pocket expense. The potential costs of not carrying this coverage far outweigh the initial monetary benefits of foregoing coverage, and you should ensure that your clients are well aware of this.
About Caitlin Morgan
Caitlin Morgan specializes in providing Workers’ Compensation insurance to residential care facilities, including offering a program designed for members of the Indiana Health Care Association (IHCA), HOPE, and Leading Age Indiana associations. We can assist you in reviewing an existing Workers’ Compensation plan, securing coverage, boosting safety plans and implementing RTW programs for your nursing home clients. Please contact us at 877.226.1027.