Every business that employs workers in the United States generally needs workers’ compensation insurance. The laws are made and enforced at the state level regarding what businesses are required to cover their employees with workers’ comp. Lacking proper coverage can lead to severe penalties.
Penalty for Not Carrying Workers’ Comp
Businesses must comply with state insurance requirements or face heavy fines and possibly jail time. In some cases, workers’ compensation penalties can cost thousands of dollars. If you aren’t carrying any coverage and an employee is killed or badly injured on the job, your business can get financially crushed in a massive lawsuit.
Mandatory for Most Businesses
In most states, a business with one or more employees is required to carry workers’ comp. These laws were put into place to protect both employers and employees from facing financial devastation in the event of an accident. However, the most lenient states don’t require businesses to purchase workers’ comp until they’ve hired at least five employees.
Workers’ Comp Penalties Vary by State
Each state sets its own laws regarding workers’ comp and the penalties issued for non-compliance. For example, California is a strict state with penalties of up to $100,000. In Illinois, avoiding coverage for your employees can be regarded as a misdemeanor or a felony if evidence shows intentional neglect. A business owner can also face felony charges in Pennsylvania for deliberate non-compliance.
Failure to carry workers’ comp can be construed as insurance fraud, which creates a negative ripple effect for the business owner. It could hurt the owner’s chances of obtaining insurance from a conventional insurance agency in the present and future.
Injured Workers Could Sue Their Employer
Employers can face further business and personal complications for not carrying workers’ comp, such as getting sued by an injured employee. Even the safest work environments can have unexpected accidents if someone spills something slippery on the floor and walks away. The next person who walks over the slippery surface can fall and get serious injuries.
Since any office, warehouse, or other work settings can be dangerous to workers somehow, most states require employers to carry workers’ comp. If your business doesn’t buy the insurance, your company can face a very expensive lawsuit that you’ll have to pay for yourself.
If you carry workers’ comp, the coverage typically includes an exclusive remedy provision that protects your company from a lawsuit. Nonetheless, the type of accident must be covered in the policy, as not all workplace disasters are covered.
Not All Business Owners Need Workers’ Comp Coverage
Solo freelancers and entrepreneurs, and companies that outsource to independent contractors for labor typically don’t need to carry workers’ comp. Likewise, if you work for yourself and never hire employees, you do not need the coverage. However, you may look into different forms of business insurance to make sure you’re covered for different types of mishaps.
If you need business liability coverage, consider a Business Owner’s Policy (BOP), which covers liability costs and commercial real estate. Other add-ons might be necessary to maximize your coverage if it’s a niche business.
If you decide to launch a new business with employees, make sure you’re aware of your state’s laws and workers’ compensation penalties. Contact the experts at The Reardon Agency for more information. We are ready to answer any questions you have about workers’ comp and other forms of business insurance.
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