There are several issues that keep you up at night as a business owner.
How can you attract more clients? Will you be able to finish that order on time? How are payroll deductions carried out? What occurs if workers' compensation insurance is not carried?
Owning a business requires you to worry about all of these things and more. But let's focus on that last query specifically. Without workers' compensation insurance, sometimes known as workers' comp insurance, what can you reasonably anticipate happening?
That depends, I guess. Let's examine the specifics.
What is workers' compensation insurance, though, first?
An insurance policy that particularly covers an accident or injuries sustained at work is known as workers' compensation insurance.
Let's assume that an employee is hurt as a result of an accident that occurs at work. Your employee may submit a workers' compensation claim if you have workers' compensation insurance (which you normally acquire through an insurance provider).
Your workers' compensation policy will reimburse injured workers for their medical costs, required rehabilitation, and lost income while they recuperate if the claim is granted.
It's significant to remember that the majority of health insurance plans do not cover accidents sustained at work. If you want to ensure that you and your employees will be covered if you get hurt at work, you must get workers' compensation insurance.
If you don't have workers' compensation insurance, what happens?
You may be thinking that you also need to research and pay for workers' compensation insurance.
Depending on the size of your company, the cost of workers' compensation insurance will vary, but most companies pay between $400 and $800 annually for their coverage.
Depending on which of the following categories you fit into, you may be able to avoid this extra fee and do without a workers' compensation policy completely.
If you have workers........
Because workers' compensation insurance coverage is governed by the state in which you live, there isn't a set guideline for it. You can locate the laws that apply to you by using a handy website provided by the National Federation of Independent Business, which lists the workers' compensation regulations by state.
However, your state will probably mandate that you carry workers' compensation insurance if you have employees (whether they are full- or part-time). This law is often based on how many employees you have; some jurisdictions only require workers' compensation insurance if you have one employee, while others set the threshold at three.
Workers' compensation insurance is solely an option for private firms in Texas. Even so, there are some exceptions.
If you don't have workers' compensation insurance, here's what happens:
What would happen if you had employees but didn't have workers' compensation insurance? You run the chance of receiving fines, facing litigation, and perhaps going to jail.
Again, the consequences for not having workers' compensation coverage depend on your state.
For instance, the fine in New York is $2,000 for every 10 days of violation. In New Jersey, the first 10 days of non-insurance are subject to a $5,000 fine, and each further 10 days of non-insurance are subject to a $5,000 fine. The potential sanctions for your state are listed below.
Note: Lack of workers' compensation insurance is a criminal crime in many states, which means that businesses could face jail time.
If an organization was required to maintain a workers' compensation policy but didn't, harmed employees may also file a lawsuit against the organization.
Those fines and penalties, it goes without saying, really mount up, and they demonstrate how wise it is to purchase workers' compensation insurance if you have employees. Like anything else, it's always better to be safe than sorry.
If you do not employ any people
Maybe you work for yourself and don't employ anyone. You take pride in operating as a one-person business.
Although it's not necessary in this situation, having workers' compensation insurance might still be a wise decision to safeguard yourself from a significant financial burden in the event that you sustain an injury at work.
If you don't have workers' compensation insurance, here's what happens:
The good news is that if you work for yourself, you won't be subject to fines or jail time for failing to carry a workers' compensation policy.
Is that terrible news? As was already established, many health insurance providers do not cover illnesses or injuries sustained at work. Therefore, if you are hurt at work, you will not only be responsible for paying for your medical bills but also for missing out on pay while you are recovering.
When using independent contractors
Suppose you deal with a lot of independent contractors but don't have any employees on your payroll. Again, the laws governing workers' compensation for independent contractors differ from state to state, so you should investigate what is required where you live.
Independent contractors may be treated as employees in some states, in which case you must have workers' compensation insurance to protect them.
If you don't have workers' compensation insurance, here's what happens:
In addition to your state's regulations and attitudes on independent contractors, a lot of this will depend on how you categorised the worker. Misclassifying workers as independent contractors might result in penalties and other issues.
You aren't required by law to supply the employee with workers' compensation coverage if they are truly an independent contractor and your state doesn't mandate it. That doesn't preclude an injured contractor from filing a lawsuit against you to recover lost pay and medical costs, though. Attorney Janette Levey Frisch claims that all they will have to demonstrate is
- There is a link between your acts or inaction and their harm.
- You were careless in your deeds and omissions.
If you misclassified an employee as an independent contractor in order to avoid paying for workers' compensation insurance, you will be subject to fines from your state as well as penalties for misclassifying your employee.
By having workers' compensation insurance, you can avoid worst-case circumstances.
The solution is simple if you have employees: you must have a workers' compensation insurance coverage. Things become a little murkier if you operate solely with independent contractors or are self-employed.
However, regardless of where you are on the business ownership spectrum, investing in workers' compensation insurance can be a wise move to safeguard both you and your company. Increased risk is the last thing you want for your company, and a workers' compensation policy is a terrific way to create a safety net.