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.
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.
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:
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.
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:
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.
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.
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
Allowing the workers’ comp policy to lapse
Falsely reporting the number of employees, class codes, payroll, or work hours
Not providing coverage for temporary or contract employees
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.
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.
Note: The information provided in this blog is intended for general informational purposes only and is not a substitute for professional legal or insurance advice. Laws and regulations regarding workers' compensation insurance are complex and vary by state and by specific circumstances. Therefore, readers are encouraged to consult with a qualified legal or insurance professional to obtain advice with respect to any particular issue or problem they might have.
Mordechai Kamenetsky, co-founder and lead agent of Kickstand, is recognized as an expert in workers' compensation. He is passionate about helping small businesses manage risks and lower their workers' comp costs. In his articles, he educates readers and clients on the intricacies of workers' comp insurance.