What is the Penalty for Not Having Workers’ Comp Insurance

Workers’ comp insurance is a requirement in almost every state for employers that fall under specific categories. This means there will be a penalty for not having workers’ comp policies in place. The penalties can range from fines to jail time, depending on the state the business is in and the specifics of the situation. Keep reading for a complete guide on what can happen to employers without workers’ comp insurance. 

What is Workers’ Comp?

The Insurance Information Institute defines workers’ comp insurance as a type of insurance coverage that provides medical support and financial assistance to employees after a workplace accident. This insurance coverage also protects employers from lawsuits filed by employees who are hurt while working. 

Workers’ comp benefits are paid out regardless of who is at fault in the accident, as long as it’s proven to be a work-related incident. Workers’ comp can even be paid out to an employee’s dependents in the case of their death while working. 

Penalty for not having Workers’ Comp

Each state has different guidelines for workers’ comp requirements, which means the penalty for not carrying workers’ comp insurance varies by state. However, some general similarities apply to most locations. 

Almost every state requires businesses to carry workers’ comp insurance once they have a specific number of employees on the payroll. The magic number is different from one state to the next, with some states requiring it with the first employee while others don’t need it until the fifth employee is hired. As an employer, it’s essential to check the specific laws for your state to know when workers’ comp coverage is required. 

The general rule of thumb is that not having workers’ comp insurance can result in fines or even jail time for the offending employer, though the specific terms will differ from one state to the next. Here are some examples of state-specific penalties:

• Employers in Illinois who don’t provide workers’ comp insurance will be charged with a misdemeanor. However, if the employer willfully fails to provide coverage, they will be charged with a felony. 
• In New Jersey, employers who don’t provide workers’ comp coverage can be charged a fine of up to $10,000 or serve up to 18 months in prison. 
• Pennsylvania law says that intentional failure to provide insurance is a third-degree felony, resulting in a fine of up to $15,000 and as much as seven years in jail. 
• California charges fines of up to $100,000 for employers who fail to provide workers’ comp insurance coverage. 

No Coverage means Employees can sue

Not only does a lack of coverage mean an employer can face legal issues from their state, but employees can also seek legal action. If an employee is injured at work and there isn’t a workers’ comp policy in place when one is required, the employee can sue the company for medical expense compensation. 

Workers’ comp insurance typically provides legal coverage against these lawsuits to protect a business from employee recourse. However, no policy means the company isn’t covered, and the employer may find themselves having to pay thousands of dollars in legal fees and medical bills. 

Some Businesses don’t need Workers’ Comp

While the general rule of thumb is that all employers should provide workers’ comp insurance coverage, some employers aren’t required to. Again, these exemptions will vary from one state to the next. However, here are some common examples of businesses that don’t need to have a policy in place:

• LLCs or sole proprietorships with no employees 
• Employees are only immediate family members of the business owner 
• The business hasn’t reached the minimum number of employees that mandates coverage being provided 

It’s also worth noting that Texas is the only state in the country that doesn’t require an employer to provide workers’ comp insurance. 

Exceptions to the Exceptions

Even though sole proprietorships aren’t required to have workers’ comp coverage, it’s a good idea to still have a policy in place if your business is in a high-risk industry, such as construction or healthcare. Knowing the laws for every state your company operates in is also essential. Just because your home office is in Texas and isn't required to have coverage doesn’t mean your offices in Oklahoma are also exempt. 

Other causes of Workers’ Comp Penalties

While not having a workers’ comp policy in place at all is the most significant penalty, there are other ways to receive penalties as an employer. Again, every state has its own guidelines, so make sure you’re well-versed in the state where your business is located. However, here are some common causes of employer penalties:

Not having enough insurance to cover all employees
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Allowing the workers’ comp policy to lapse
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Falsely reporting the number of employees, class codes, payroll, or work hours 

Not providing coverage for temporary or contract employees
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Violating other responsibilities, such as failing to post employee rights, not reporting injuries, or not providing access to emergency or medical care

The penalties can range in severity and cost but can all be devastating for smaller businesses. This is why it’s essential to make sure you have a proper policy in place for your business’s industry and size. 

Avoid Penalties with a solid Workers’ Comp Policy

The penalty for not having workers’ comp insurance differs for every state but will likely include fines, jail time, or both for the offending employer. These penalties can be devastating to smaller companies and drastically hurt the employer's reputation.

Work with Kickstand Insurance to get a policy that matches your needs to avoid the financial and legal repercussions of not having workers’ comp insurance in place. Our team has experience providing coverage in various states and many industries. No matter your company’s size or needs, request a free quote and get a final policy in less than 48 hours.